A unit of China Petrochemical Corp., the country’s second biggest oil and gas producer known as Sinopec Group, will shut four oil fields in the eastern province of Shandong for the first time in its more than half a century history.
Sinopec Shengli Oilfield Co. will shut the Xiaoying, Yihezhuang, Taoerhe and Qiaozhuang fields to save as much as 130 million yuan ($19.9 million) in operating costs, the company said in a statement on its Weibo account. China Petroleum & Chemical Corp., the listed unit of Sinopec Group, needs crude to average above $50 a barrel to break even, according to Sanford C. Bernstein & Co.
“We expect Sinopec’s domestic oil production to drop 5 percent to 10 percent this year as it shuts down aging high-cost oil fields,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein, referring to the listed company. “Sinopec has been maintaining output in its aging oil fields by over- investing and this is no longer possible in the current oil price environment.” The shutdowns come as Saudi Arabia and Russia agreed to freeze oil output at near-record levels, the first coordinated move by the world’s two largest producers to counter the slump. While the deal is preliminary and doesn’t include Iran, it’s the first significant cooperation between OPEC and non-OPEC producers in 15 years and Saudi Arabia said it’s open to further action.
The four oil fields are among the least profitable among 70 run by Sinopec Shengli, according to the statement. Sinopec Shengli first produced oil in 1961 and has since become one of China’s major producers. Its output since inception is 1.13 billion tons of crude and 57.2 billion cubic meters of natural gas.
China’s oil output may drop between 3 percent to 5 percent from last year’s record of 4.3 million barrels a day, according to analysts from Nomura Holdings Inc. and Sanford C. Bernstein.
That would be the first decline in seven years and the biggest drop on record going back to 1990. China is the world’s fifth-largest producer and biggest consumer after the US.