UPDATE 2-CNOOC sees anaemic output rise in 2013, driving need for M&A

Wed Jan 30, 2013 5:06pm IST

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* CNOOC 2013 output target below avg annual growth forecast for 2011-2015

* 2013 output forecast based on WTI assumption of $90/bbl

* 2013 capex to jump 31-52 pct yr/yr

* CNOOC struggling to stem output declines at ageing fields -analysts

By Charlie Zhu

HONG KONG, Jan 30 (Reuters) - Top Chinese offshore oil and gas producer CNOOC Ltd said it plans to boost spending to produce up to 2 percent more of the fuels in 2013, below a five-year average growth target, highlighting the need for the state giant to make acquisitions.

The company -- which is acquiring Canadian energy firm Nexen Inc for $15.1 billion in China's largest ever overseas takeover -- has forecast 6 percent to 10 percent compound annual output growth in 2011-2015, partly by focusing on unconventional resources, like oil sands and shale gas.

The low 2013 production growth target showed the company is struggling to prevent output declines at its existing fields -- many of which are ageing, analysts say.

"Clearly the underlying declines of the existing aging fields are so severe that they completely offset the contributions from the smaller new fields," said Gordon Kwan, Head of Energy Research at Mirae Asset Securities.

"This might explain the urgency to acquire and bolt on Nexen to fill this year's performance growth gap and ensure that the firm's long term 6-10 percent production (growth) target between 2011-2015 could still be achieved," he added.

CNOOC has said the acquisition of Nexen would boost its production by 20 percent and proven reserves by 30 percent. CNOOC has nine years of reserves based on current production, one of the lowest ratios among major oil companies worldwide.

"The company is confident to achieve its production growth target of 2011-2015," CNOOC said in a filing with the Hong Kong bourse on Wednesday.

CNOOC Chief Financial Officer Zhong Hua said in a conference call the forecast growth for 2011-2015 was backed by a strong project pipeline and its overseas projects. Most of the growth will come from domestic fields, he said, adding, however, that this year's growth would mainly come from abroad.

The company expects 10 new oil and gas fields offshore China to come on stream this year, he said, adding that most of the projects will start production towards the end of 2013, boding well for the firm's 2014 production.

Zhong reiterated the company is confident it would complete the takeover of Nexen by the end of March and it is still waiting for approval from the U.S. government because Nexen has assets in the U.S. Gulf of Mexico.

FLAT OUTPUT, SURGING CAPEX

The Chinese company is targeting reserve replacement ratio of more than 100 percent for this year, he said.

CNOOC aims to produce 338 million-348 million barrels of oil equivalent (boe) this year, compared with estimated output of 341-343 million boe in 2012, it said. The 2012 output estimates were roughly in line with the company's target of 335-345 million boe set for last year.

The 2013 output forecast was based on assumption that international crude benchmark West Texas Intermediate (WTI) would average $90 per barrel this year, compared with average oil price of $94.1 in 2012, CNOOC said.

The production forecast has incorporated the assumption that CNOOC's Penglai 19-3 oilfield in eastern China's Bohai Bay, suspended since September 2011 after being hit by an oil spill, would resume production later this year, Zhong said.

CNOOC is still seeking Chinese regulatory approvals to restart production at the oilfield, in which U.S. oil firm ConocoPhillips acts as operator and owns a 49 percent stake. CNOOC Ltd has the remaining 51 percent stake.

The Chinese company has earmarked $12 billion-$14 billion as capital expenditure for exploration, development and production for this year, up from $9.3 billion-$11.0 billion it set for 2012.

Analysts say CNOOC's surging upstream spending would boost the earnings of its sister company China Oilfield Services Ltd , which announced on Wednesday that its capital expenditure would reach 4 billion to 5 billion yuan this year.

"With twenty-four new projects under construction, the year of 2013 is expected to be a new peak of engineering and construction," CNOOC said.

Shares of CNOOC ended up 1.9 percent on Wednesday ahead of the announcement.

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