CNOOC chief expects to see $40 oil price
By Alan Beattie, Financial Times, November 18, 2008

BARCELONA, Spain — The world's national oil companies expect oil prices to fall further and will cancel most planned investment projects even at current levels, says the head of a Chinese state-owned group.

A recent meeting of the national oil companies in Beijing had predicted oil prices would fall to about $40 a barrel, Fu Chengyu, chief executive of China National Offshore Oil Corporation, told a Horasis conference in Barcelona.

"The consensus at the time was that everybody realised the oil price would be even lower," Mr Fu told the Global China Business Meeting. "Nobody knew where it would be but most of them said around $40."

Mr Fu said that about 27 companies from 23 countries attended the meeting in Beijing, which he said was on October 17 or 18, though he declined to name those present. He described the tone of the meeting as one of "panic" at falling prices.

Oil yesterday was trading around $54 a barrel, down from a high of $147.27 touched in July.

Mr Fu's bleak pronouncement echoes other recent warnings. The International Energy Agency, in its annual report released last week, warned of a second capacity crunch because national oil companies were likely to underinvest, especially at low prices.

Opec ministers, whose countries' national companies control 40 per cent of world oil supplies, warned last month that low prices threatened worldwide investment in new capacity. Nig-eria's oil minister told the FT the country's deep-water projects were in jeopardy.

This month Adnoc, the UAE's national oil company, said its target to expand oil capacity by 1m barrels a day would be delayed by eight years. Also this month, Saudi Arabia , delayed two $10bn-$20bn refining projects with Total of France and ConocoPhillips of the US, leading some energy executives to suggest they might be cancelled altogether.

Mr Fu said executives at this month's Beijing meeting thought oil would soon rebound to $50-$55, but even at those levels investment in new production would be cut heavily.

"If the oil price remained around $50 or $55, that would mean cutting at least 60 per cent of budgeted projects for the next one or two years from the national oil companies," Mr Fu said.

Of the new extraction projects planned by state-owned companies in deep-sea areas, the lowest break-even oil price was about $60 a barrel and the highest about $90 per barrel, he said.

"When most of the oil companies budgeted their projects, they were using $70, $80, even $100 a barrel for their cash-flow calculations," he said.

"For those projects that have started, certainly they will try to complete them, but for those projects that have not started yet they will delay or cancel. Simply, they don't have enough cash to do all of those that they budgeted."

Mr Fu also said that any cut in production by Opec, the cartel of oil-exporting countries, was regarded as likely to be ineffectual.