PetroChina has reported plans to cut capital spending at China’s largest oilfield by 20 percent in 2017. In its statement the oil major claimed that, despite the decrease in drilling and engineering investment, it would aim to increase production by 10 percent at each operating well. This would maintain an output level of around 40 million tons of oil and gas through to 2019, a slight reduction from the 41 billion tons produced in 2015.
The Daqing oilfield has been having issues with spending this year, posting a loss of 5 billion Yuan, or $770 million, in the first two months of 2016. Low oil prices have forced PetroChina and other oil majors to focus on reducing costs and increasing efficiency in older wells. Daiqing, which has produced over 2.3 billion tons of crude oil since 1960, is now coming under scrutiny as low oil prices continue to squeeze profit margins.
China’s crude oil production is projected to decline steadily over the next decade, with depleting conventional onshore resources being a major factor. The 20 percent reduction in capital spending at Daqing is further evidence of this trend. While the recent OPEC production agreement has produced a much-needed rally in oil prices, the longevity of this new-found optimism is far from certain. In fact, the combination of an increasing U.S. oil rig count, China’s ever growing Strategic Petroleum Reserve, and the tendency of OPEC to cheat on production cuts has led to several analysts predicting another crash in oil prices.
This most recent decision by PetroChina to reduce investment in drilling and ground engineering projects at Daqing reflects the uncertainty in today’s oil markets. It is unlikely to be the last spending cut to come from a conventional Chinese oil field.
By Josh Owens of Oilprice.com
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Josh majored in International Relations at the University of Edinburgh and is currently the Content Director at Oilprice.com