China's oil major Sinopec has responded to the disappointing results of yesterday's Doha meeting by announcing the temporary closure of four oil fields that have been in production for over 50 years.
Sinopec (China Petroleum & Chemical), the second-largest producer in China and the largest refiner in Asia, will temporarily shut down four oil production projects after Saudi Arabia, Venezuela, Russia and Qatar said they would pursue an anti-climactic freeze on output to January levels.
From the Chinese oil major's perspective, the freeze to January levels-which still requires agreement from other producers-is not enough to sustain some operations.
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The four sites slated for closure are in the Shengli oilfield in Shandong province, which Sinopec says are among the poorest performers.
With average production costs in China running between $40-$60 per barrel, state-backed producers are suffering major losses, including PetroChina (the largest) and CNOOC.
"At current oil prices, the shutdown could save 130 million yuan (HK$155 million) of costs and reduce losses by 200 million yuan," the company said on its website.
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In 2015, Sinopec's profits declined more than 50 percent, and oil production is expected to further decline this year, by around 2 percent.
Analysts expect an even greater decline.
"Sinopec has been maintaining output in its aging oil fields by over-investing and this is no longer possible in the current oil price environment," Bloomberg cited Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein, as saying.
Beveridge estimates that Sinopec needs oil to stay above $50 a barrel to break even, and that its domestic production will drop 5-10 percent this year.
For China's major oil companies, the price slump could lead to sweeping reforms that see them lose exploration licenses to private companies.
By James Burgess of Oilprice.com
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