PetroChina to cut capex 30% in 2020 but still sees upstream output rising

Singapore — PetroChina, China's biggest oil and gas company by assets, plans to cut its capital expenditure by around 30% to about Yuan 200 billion ($28.33 billion) in 2020 from the actual spending last year, while lifting its gas output by 5% and keeping oil output flat, Wei Fang, assistant secretary to the board of directors, said late Wednesday during its 2020 first-quarter results call.

The capex and production guidance was set based on a price-driven mechanism, Wei said, adding that the company expected prices would return to normal levels when economy activity resumes from the coronavirus pandemic.

The listed company spent Yuan 296.8 billion in 2019, but did not disclose its capex in Q1.

The close to 30% capex cut is the heaviest so far flagged up by the large Chinese state-owned oil and gas companies. Sinopec has said it will reduce capex by 20-25% while the cash-rich CNOOC Ltd's latest budget is more or less flat to 2019.

Wei said all units in the company, from upstream to downstream, would be required to implement a 30% budget cut.

"This is the time for us to squeeze water from a dry towel," Wei said, adding that the upstream unit would try to achieve breakeven at $40/b while maintaining output steady.

Wei indicated PetroChina's crude oil output target for this year was at the similar level to the 909.3 million barrels (2.49 million b/d) achieved in 2019, with a 5% increase in natural gas output to about 4,103.4 Bcf.

In Q1, PetroChina produced 413.9 million barrels of oil equivalent (4.55 million boe/day) from both its domestic and overseas oil and gas assets, up 6.1% year on year.

The company attributed the increase in production primarily to higher capital expenditures last year, which added production capacity.

Meanwhile, PetroChina lifted domestic natural gas production by 10.2% year on year to 1,023.8 Bcf in Q1, in order to generate cash flow to make up for losses on term LNG/gas imports, which deepened to Yuan 3.93 billion ($560 million) in Q1 from Yuan 3.29 billion a year earlier.

RUN RATES RISING TO 80% IN Q2

PetroChina, the second biggest refiner in China with 4 million b/d of capacity, will lift its crude runs to 80% in Q2 from 75% in Q1 despite the market remaining oversupplied.

PetroChina processed 37.42 million mt of crude oil in January-March, falling 9.6% year on year.

"We gradually increased crude runs as domestic demand recovered in late March, April from COVID-19 pandemic," an executive said, adding that the company would optimize its product output to meet market demand.

"Driven by gasoil demand from the construction sector, we will lift the gasoil yield to 1.31 times of gasoline while raising asphalt production," he said.

PetroChina has spent years lowering gasoil yield in order to lift gasoline output.

In Q1, PetroChina produced 11.85 million mt of gasoil, which was 1.08 times of its gasoline output.

Moreover, the company would continue lifting petrochemical yield while cutting oil product yield, the executive said.

PetroChina's yield for the key products -- gasoline, jet/kerosene and gasoil -- was at 67.4% in the first three months of this year, down from 70.7% in the same period of last year, suggesting increased petrochemical production yield.

The company's marketing segment recorded a loss of Yuan 16.59 billion in Q1, making it the worst performing unit, with total oil product sales volume falling 15.9% year on year.

The segment made a Yuan 3.52 billion profit in the same period of last year.

PetroChina's operation result

* Oil, gas outputs from both domestic and overseas

PetroChina's domestic production (mil mt)

* conversion factor: 1 cubic meter = 35.31 cubic feet

** conversion factor: 1 mt = 7.389 barrels

^ Divide PetroChina's output by China's total production

PetroChina's oil product sales volume (mil mt)

Source: company report, National Bureau of Statistics