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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  CNOOC Limited    883   HK0883013259

CNOOC LIMITED

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Newly reliable Buzzard calms oil prices

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12/18/2013 | 09:07am EDT

LONDON (Reuters) - One of the world's most important oilfields, the North Sea's Buzzard, long known in the industry for struggling output and continual breakdowns, has gone through a quick and surprising transformation.

Buzzard, which plays a leading part in setting global oil price benchmark Brent, has been pumping almost non-stop since August, less than a year since Chinese state company CNOOC bought its operator, Nexen.

The improved reliability shows the Chinese company has delivered on its pledge to fix the field quickly, as Nexen says it invested in new equipment and training. The field has, for now, stopped driving brutal price spikes in the Brent oil market.

"We're working to reduce unplanned outages by investing in new equipment, operator training and by continually examining ways to improve our business processes," said Patti Lewis, a spokeswoman for Nexen, which CNOOC bought in February.

In March, industry sources and analysts said factors including links to creaky infrastructure, high sulphur levels in Buzzard's oil and a risk-averse approach at Nexen might explain why it shut frequently.

A source at an oil company familiar with Buzzard's production who declined to be identified, said a generally improved approach to operating the field was the key factor that had changed in recent months.

"I believe it's just better management," the source said. "It's good news."

'BUZZARD IS FLYING'

Stable output of recent months is in contrast to 2012, when there were at least six outages and one frustrated trader said it was "worse than Nigeria," where theft from pipelines and spills hamper production almost daily.

"Buzzard is still flying," said an industry source. "It's been like that now for over a month. Prior to that, other than a little blip for a couple of days, production has been good since mid-August."

The field normally pumps 200,000 barrels per day of oil, less than 0.25 percent of daily world supply.

But it plays a bigger role in pricing than its size would otherwise dictate due to its position as the largest field contributing to Forties blend, the most important of the four North Sea crude grades underpinning the Brent benchmark.

This means unplanned Buzzard shutdowns boost Brent prices and lead to higher price premiums of Brent futures for immediate delivery. One outage, in early June, sent Brent crude back above $100 a barrel, said analysts at the time.

Reflecting more ample supply in recent weeks, the premium at which the first-month Brent contract is trading to the second month has dropped to 20 cents, from a 2013 high of $2.03 reached in September.

"It's fair to say that Buzzard stability has helped cap the upside for Brent," said Eugene Lindell, analyst at JBC Energy in Vienna, although he added lower refinery demand was a more significant factor.

More reliable output is leading to more stable exports of Forties crude blend. Forties cargoes loading in December had their loading dates brought forward, in contrast to the delays which plagued loadings in previous months.

Besides traders, another beneficiary of more stable Buzzard flows is China, which as the world's second-largest consumer is helped by a weaker North Sea benchmark price as it imports around a third of its oil - over 2 million bpd including Nigerian and other African crudes - based on Brent prices.

(Additional reporting by Claire Milhench, editing by William Hardy)

By Alex Lawler

Stocks mentioned in the article
ChangeLast1st jan.
CNOOC LIMITED -1.52% 7.79 End-of-day quote.-39.89%
SEA LIMITED 0.93% 154.36 Delayed Quote.278.22%
THE LEAD CO., INC. 2.71% 379 End-of-day quote.-2.82%
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Financials
Sales 2020 162 B 23 928 M 23 928 M
Net income 2020 23 126 M 3 407 M 3 407 M
Net Debt 2020 108 B 15 868 M 15 868 M
P/E ratio 2020 14,9x
Yield 2020 4,23%
Capitalization 348 B 44 877 M 51 236 M
EV / Sales 2020 2,80x
EV / Sales 2021 2,32x
Nbr of Employees 18 425
Free-Float 35,6%
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Number of Analysts 21
Average target price 9,60 CNY
Last Close Price 7,79 CNY
Spread / Highest target 77,5%
Spread / Average Target 23,2%
Spread / Lowest Target -0,30%
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NameTitle
Ke Qiang Xu Chief Executive Officer & Executive Director
Guang Jie Hu President & Executive Director
Dong Jin Wang Chairman
Wei Zhi Xie Chief Financial Officer
Sung Hong Chiu Independent Non-Executive Director
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