Daqing Oilfield of CNPC, February 28 Photo: CFP

 

Graphics: GT

China National Petroleum Corp (CNPC) recorded more than 5 billion yuan ($770 million) in losses at its largest and oldest oil field in Daqing, Northeast China's Heilongjiang Province, during the first two months of 2016, the Securities Daily reported on Thursday.

Analysts have warned that 2016 will be another difficult year for the domestic petroleum industry given plunging international oil prices in a glutted market.

Unidentified staff at the Daqing Oilfield were quoted by the report as saying that employees' salaries have been lowered since April 2015.

In response to the report, CNPC told the Global Times on Thursday that the company is "actively and strictly" adopting a performance evaluation mechanism. The mechanism, proposed by the State-owned Assets Supervision and Administration of the State Council, requires State-owned enterprises to match employees' performance pay with their actual contribution.

While Daqing Oilfield of CNPC, which runs the oil field, could not be reached for comment as of press time, Jiang ­Wanchun, Party chief of Daqing Oilfield, said on March 10 during the two sessions of the country's legislative and advisory bodies, that the operation of the oil field faces big pressures caused by low oil prices.

PetroChina Co, CNPC's listed arm at the Shanghai bourse, in January estimated a drop in net profit in 2015, down at most 70 percent year-on-year, citing global sluggish oil market.

PetroChina's net profit for the first three quarters of 2015 dropped 68 percent year-on-year to 30.6 billion yuan. At Sinopec, the figure was 25.8 billion yuan, down 49 percent.

Global crude oil prices have been declining since 2014. Oil prices on January 15 tumbled below $30 a barrel for the first time in 12 years.

"Things won't get any better in 2016, and this will cast a shadow over the prospects of domestic oil fields," Li Li, an energy research director at Shanghai-based consulting firm ICIS C1 Energy, told the Global Times Thursday.

According to a report issued by the US Energy Information Administration on March 8, the global Brent crude oil price in 2016 is expected to average $34 per barrel, lower than the $37 per barrel forecast the administration made in its February report.

In addition to low oil prices, high production costs are also squeezing the profits of Daqing Oilfield, said analysts.

"Chinese companies' exploitation costs are usually higher than those of overseas peers given China's complex geographical conditions and the lack of advanced technology," Zhou Fengqi, a senior counselor with the Energy Research Institute of the National Development and Reform Commission, told the Global Times Thursday.

Li agreed with Zhou, noting that Daqing Oilfield, which was founded in 1959, has more technological challenges in oil exploitation than other oil fields.

Output target cuts have been applied by domestic energy companies as a way to cope with plunging oil prices.

CNOOC Ltd previously announced a reduction in its oil and gas output target for 2016 to a range of 470 million barrels of oil equivalent (BOE) to 485 million BOE, lower than the target of 509 million BOE the company set for 2016 back at the beginning of 2015.

Production cuts can ease the tough situation of Chinese oil fields to some extent, said Zhou.

"But local governments' subsidies are also needed, otherwise some oil fields will shut down," noted Zhou.

According to media reports, Sinopec Shengli Oilfield, which suffered 9.2 billion yuan losses in 2015, plans to close four small oil fields this year.