China's CNOOC in no hurry to exit North Sea, but open to attractive offers

China's state-run CNOOC is open to discussions with potential buyers interested in taking over its oilfields in the UK's North Sea, but the offshore giant is not in a rush to exit the region and any sale would depend on an attractive valuation for its shareholders, company CFO Xi Weizhi said Oct. 27.

Xie added that while CNOOC had received several bids for its North Sea assets and is willing to have further discussions for a potential sale, the company's vision was to have a broad global upstream presence.

"Regarding UK assets, we are not under pressure to exit, but we are willing to talk if there is a good opportunity," Xie said during a media conference call to announce the company's Q3 results, adding that Norway's Equinor as well as some other oil firms had shown interest in buying those assets.

Analysts said it is a good window for CNOOC to optimize and restructure its overseas portfolio as crude prices had climbed to multi-year highs amid the Russia-Ukraine war. CNOOC's realized crude and liquid prices averaged $101.40/b in the first three quarters of 2022, jumping 55.8% year on year, the company's third quarter results showed.

Although there is no official word from Equinor, market sources believe the company considered buying CNOOC's oilfields in North Sea, including CNOOC's stake in the Buzzard oilfield, which could potentially be valued at NOK 20 billion-30 billion ($1.94 billion-$2.91 billion).

In the UK, CNOOC holds a 43.21% interest in the Buzzard oilfield and a 36.5% interest in the Golden Eagle oilfield. CNOOC also holds a 50% exploration interest in the P2215 block in the North Sea, and completed the drilling of two appraisal wells in Glengorm in 2021. In addition, CNOOC has a 37.5% interest in P2415 block in the West Shetland Basin.

"As an upstream company, we are keen to have a global layout to sustain our exploration and development business. We won't restrict our assets within a specific region nor pursue exits from any specific region," Xie said.

CNOOC's oil and gas output from Europe, comprising both the UK and Russia, rose 2.6% year on year to 43,960 boe/d in January-September, accounting for 2.6% of its global production, according to its Q3 results.

Oil, gas output hit high

Globally, oil and gas output hit a historic high of 1.69 million boe/d in the first nine months to take advantage of the prices. Production volumes rose 9.3% year on year and exceeded its production target of 1.64 million-1.67 million boe/d for 2022.

As a result, the company's net profit surged 105.9% year on year to Yuan 108.77 billion ($15.04 billion) over January-September.

Robust domestic production accounted for 70.1% of CNOOC's global oil and gas output, up from 69.4% in the same 2021 period.

The company has targeted production to reach 2 million boe/d by 2025.

CNOOC's domestic crude production rose 8% on the year to 925,000 b/d in January-September, exceeding China's overall output growth rate of 3% to 4.13 million b/d in the same period.

The company is looking to boost domestic crude production to 60 million mt/year (1.2 million b/d) in 2025, representing a growth of 7.6% over 2022-2025.

Meanwhile, CNOOC's domestic gas output growth surged 20.6% year on year to 419.7 Bcf (11.9 Bcm) in the first three quarters, while China's output gained 5.4% to 160.12 Bcm in the same period.

The state-owned firm expected its gas output to peak at 40 Bcm/year in 2035, with peak volumes expected to be sustained for a few years.

Future production challenges

"Production will plateau at around 780 million boe in 2030 before declining from there as we assume the company prioritizes cash return over re-investment. We assume minimal re-investment post 2030 in oil and gas which leads to a declining reserves outlook towards 2050," Bernstein Research said in an Oct. 27 note.

CNOOC's capital expenditure rose 20.6% on the year to Yuan 68.69 billion ($9.5 billion) in January-September, meeting 72% of its full year target of Yuan 90 billion-100 billion.

"The company expects to reach the upper end of capex by year-end. In the next few years, CNOOC expects to spend around Yuan 100 billion to achieve long term production target," Bernstein said.

CNOOC's first deep-water, deep-stratum large gas field Baodao 21-1 was recently certified by the Chinese government with proven reserves of 50 Bcm of natural gas and 3 million cubic meters (18.87 million barrels) of condensate.

The Baodao Sag of Qiongdongnan basin, with water depth ranging from 660 meters to 1,570 meters, is expected to be an additional contributor, building a gas production base of 1 trillion cubic meters in the South China Sea, Xie said.

CNOOC has formed a New Energy unit to focus on exploring offshore wind power projects with 1-2 more opportunities targeted for the near term. The company will also look at onshore wind and solar projects on a selected manner.

"CNOOC will spend 5%-10% of total capex between now to 2025 for new energy business with a targeted return that is similar to the oil and gas business. By 2050, CNOOC targets at least 50% of earnings will come from new energy," Bernstein added.

CNOOC's operation result

CNOOC's crude oil, liquids output (million barrels)

CNOOC's gas output (Bcf)

Source: company report