State-run Chinese oil giant CNOOC Ltd. blamed its Nexen Energy ULC unit for pushing up operating costs Thursday, the latest evidence that China’s binge on Canadian energy assets is having mixed results.
More than one year after completing its controversial $15.1-billion acquisition of the Calgary-based oil and gas producer, Beijing-based CNOOC Group appears to be feeling the pinch of Nexen’s cost structure.
CNOOC said Thursday total net oil and gas production in the first half of 2014 hit 211.6 million barrels of oil equivalent (BOE), up 6.8 per cent from a year earlier. Nexen contributed 36.3 million BOE of the total. But operating costs company-wide jumped 7 per cent to $11.78 (U.S.) per BOE, with the increase mainly attributed to the “consolidation” of Nexen’s performance over a two-month period. Net income fell 2.3 per cent to 33.59-billion yuan ($6-billion Canadian).
CNOOC said it is working to integrate the two companies, “especially in the areas of management, resources development and corporate culture.”
A Calgary-based spokeswoman for Nexen referred questions about the unit’s performance to CNOOC investor relations, which did not immediately respond to a request for comment.
The results underscore difficulties that have hampered China’s multibillion-dollar foray into Western Canada’s energy industry. Its state-run energy giants spent heavily amassing oil sands and shale properties in recent years, but they have encountered setbacks similar to those that have plagued their North American rivals, including high operating costs and low prices for Alberta’s extra-thick crude oil.
CNOOC, China’s largest offshore oil producer, inherited Nexen’s flagship oil sands project at Long Lake, Alta., a steam-driven development that has operated under capacity for years. CNOOC said Thursday the project “achieved significant improvement” in the first half of the year, but did not provide specifics.
Some of China’s energy investments have soured as a result of corporate restructuring: China Investment Corp.’s roughly 5-per-cent stake in Penn West Petroleum Ltd. has lost value amid an ongoing probe into accounting irregularities at the Calgary-based producer. Others, such as CNOOC’s interest in MEG Energy Corp., have shown steady gains.
CNOOC’s purchase of Nexen marked China’s largest-ever overseas acquisition at the time. The deal prompted Prime Minister Stephen Harper to clamp down on investment by state-owned energy companies in Alberta’s oil sands, a move some analysts have blamed for slowing investments by such firms in Canadian energy assets.
Nexen in April abruptly replaced chief executive Kevin Reinhart with Fang Zhi, a reservoir engineer by training and a key figure in cementing the blockbuster takeover.