ADNOC extends oil cuts to March

The national oil company has extended oil output cuts to March as part of a continuing effort by Opec to boost global crude oil prices.

Abu Dhabi - June 8, 2008 - An ADNOC station on Fourth Rd and Al Saada St. ( Philip Cheung / The National ) *** Local Caption ***  PC205-ADstock.jpgbz22sectoradnoc.jpg
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The Abu Dhabi National Oil Company (ADNOC) has extended oil output cuts to March as part of a continuing effort by OPEC to boost global crude oil prices. Major oil exporters are under pressure to limit supplies and push prices back above $60 a barrel to balance their budgets. Multinational oil companies are also suffering from the price collapse, which has reduced the value of crude by 70 per cent since July. They reported billions of dollars of losses for the last quarter of last year.

Royal Dutch Shell yesterday registered a US$2.81bn (Dh10.32bn) loss in the fourth quarter, its first quarterly loss in a decade, a day after ConocoPhillips announced a loss of $31.76bn. "We are steering the Shell ship through rough waters and so far, it's OK," said Jeroen van der Veer, the chief executive at Shell. "The oil industry is now facing some difficult conditions. Downstream conditions are as tough now as they were in the early 2000s."

Oil prices fell again yesterday as US government data showed an increase in the country's crude inventories. West Texas Intermediate crude for March delivery was down by $0.75 to $41.40 per barrel, while Brent crude fell $0.41 to $44.90. ADNOC issued guidelines for its March crude oil production levels, indicating that output of three major crude streams from offshore terminals would remain stable at between 10 per cent and 15 per cent below normal levels. The main onshore crude oil, known as Murban, would pump at 10 per cent below normal, ADNOC said, compared with a 15 per cent reduction in February, according to WAM, the official state news agency.

The company reserved the right to fill tankers 5 per cent below normal capacity, which leaves ADNOC a margin of flexibility. International oil firms acknowledged the impact of lower prices this week in quarterly earnings statements. Shell's oil production declined 7 per cent over the year as a result of turmoil in Nigeria, natural declines in fields and the OPEC production cuts. Gas production was up 4 per cent.

The firm anticipated that capital spending would remain flat at about $31bn this year, and new capital projects would be pushed back, Mr van der Veer said. "For 2009 budgeting, we will, of course, continue with committed projects, but we have slowed back discretionary spending and pushed back some potential final investment decisions," he said. As oil prices have fallen, oilfield development costs have remained high, since it typically takes 12 to 18 months for reductions in costs for items like drilling rigs and tankers to have an impact on the firm's balance sheet, Mr van der Veer said.

A key liability among Shell's investments last autumn was Canadian oil sands projects, where the company lost $30 million for the quarter. Bituminous oil in western Canada is mined in open pits and turned into crude through an expensive, energy-intensive process. Each barrel of crude from oil sands costs Shell $38 to produce, according to Mr van der Veer. Overall, Shell made $941 million in revenue on oil sands last year, and Mr van der Veer said the deposits served as the "balancing fuel" to meet world demand for energy.

Describing oil companies as mere "price takers", Mr van der Veer declined to specify what he thought the price of oil should be. At the World Economic Forum in Davos, Switzerland, the chief executive of BP said oil between $60 and $80 per barrel was "appropriate" for Opec. "For OPEC, $60 to $80 is appropriate to sustain their social programmes and future investments," Tony Hayward said. Saudi Arabia, the world's largest producer, has said $75 a barrel was a fair price for crude.

ADNOC has signalled that it intended to go ahead with oil investment projects despite the fall in prices. Earlier this week, the Abu Dhabi Company for Onshore Operations, an ADNOC subsidiary, awarded $3.5bn in contracts to three firms to increase production capacity at the onshore Sahil-Asab-Shah fields. Other regional oil companies, including Saudi Aramco, have also signalled they would move forward with projects.

National oil companies had ample cash and were giving priority to strategic considerations over commercial interests, while international oil companies (IOCs) were under pressure from shareholders to cut costs, said Raja Kiwan, an analyst at PFC Energy, a Washington-based consultancy. "They look at it almost from a macroeconomic perspective - it's not only about maximising value in the short term," he said of national firms. "From an IOC perspective, their consideration is a lot more short term. If prices remain where they are, they are forced to cut their capital expenditure accordingly."

* with agencies cstanton@thenational.ae