China's offshore crude oil flow to drop 11% in 1999

China's offshore crude oil production is expected to drop 11% to 14.5 million metric tons in 1999 from 16.3 million tons in 1998.

It will be the first time in 5 years that China National Offshore Oil Corp.'s (Cnooc) crude production has fallen. Cnooc's production has been growing at an average annual rate of 29% since 1994.

In February, China's offshore crude output fell 9.7% from the January level to 1.3 million tons. However, February production was up 3.2% from 1.26 million tons in February 1998. Of the total in February 1999, 937,254 tons, or 72%, was produced by China Offshore Nanhai East Co. (Conhe), a Cnooc subsidiary.

Cnooc's crude production in the first 2 months of 1999 was 2.74 million tons, down 3% on the year.

The drop in output is inevitable because most of Cnooc's major fields, in the South China Sea off the Pearl River Mouth delta, have entered into decline after plateauing during the past 5 years.

Conhe will account for a major part of the drop in production this year, with volumes expected to drop 16% from 1998's level to 10.7 million tons.

New production

To stem the decline in offshore oil production after 1999, Cnooc this year will have brought on stream five new fields, adding up to 3 million tons/year of capacity to its producing portfolio.

The five fields and their start-up periods are: Pinhu in the East China Sea (February); Xijiang 24-1 in the Pearl River Mouth delta (June); Wei-11-4c (July) and Wei 12-1 (September), both in the Beibu Gulf; and Jinzhou 9-3 in the Bohai Sea (November). Pinhu, a joint venture of Cnooc, China National Star Petroleum Corp., and Shanghai Municipality, was put on trial production in November 1998. During November-December, it produced a total 60,000 tons of crude. The field is expected to produce 600,000 tons of crude and 210 million cu m of gas in 1999.

Cnooc is China's major offshore operator. Its increased production over the last 5 years is largely a result of its cooperation with foreign oil companies. It has signed about 140 production-sharing contracts with about 70 foreign oil companies from about 20 countries.

Reduced exports

Meanwhile, Cnooc is targeting an export level of 2 million tons of crude oil in 1999, down 67% from last year's 6 million tons.

Most of Cnooc's crude exports are sent to Australia. The reduction in exports is to accommodate an expected increase in domestic demand for offshore crude oil resulting from a drop in onshore crude output this year. Main onshore producers and state-owned oil companies China National Petroleum Corp. and China Petrochemical Corp. have decided to cut their crude oil production in 1999 by a combined 2.2 million tons, largely through shutting in of marginal and high-cost production amid low oil prices.

The reduced exports, with the attendant loss of foreign exchange, poses a dilemma for the state offshore oil producer. Cnooc is required by the government to increase its profit by 43% from last year to 1 billion yuan in 1999.