PetroVietnam mulls production cut as oil plunge

A drilling platform of PetroVietnam offshore Vung Tau City. The national oil and gas group is considering cutting oil production this year by around 450,000 tonnes in the face of declining global oil prices. - VNA/VNS Photo Huy Hung

Oil prices have been in free fall of late, with a record loss of 50 per cent in just six months, hitting a six-year low of around US$46 per barrel on January 13. The prices of both Brent and US crude improved slightly yesterday in Asia trade but remained under $50 a barrel.

In a Thursday interview on Vietnam Television (VTV), PetroVietnam Chairman Nguyen Xuan Son said the group was considering decreasing production in oil fields where production cost is above $50 a barrel.

PetroVietnam would also consider stopping production at high-cost oil wells if the technology makes it possible, Son said.

He had earlier explained that the complex technology involved in oil exploration and production makes reducing or stopping production a complicated affair.

The average production cost at most PetroVietnam oil fields is around $30-35 a barrel. At some places, the production cost is even lower at just $20-25 a barrel, according to Son.

The projected reduction in oil production announced by PetroVietnam is small compared with the group's production target of 16.8 million tonnes for the whole year.

Several local media reports and analysts have said that PetroVietnam's announcement makes Viet Nam the first country in the world to consider cutting oil production because of the falling prices.

The Organisation of the Petroleum Exporting Countries (OPEC) has said it would not cut production and would keep output steady despite oil's mounting losses. Meanwhile, the International Energy Agency has said that non-OPEC oil producers will still increase output this year but at a slower pace.

Son said that the group could make profits even at $40-45 a barrel, but as prices plunged below $50, the plan to decrease production aimed at protecting the nation's natural resources.

PetroVietnam has also considered the possibility of increasing oil reserves if prices fall to around $40-45 a barrel, selling them when the price situation improves.

At a meeting held yesterday to review the oil industry in 2014, Deputy Prime Minister Hoang Trung Hai said the world situation had become more unpredictable with many unstable factors that would influence the whole economy in general and the petroleum industry in particular.

He asked PetroVietnam to monitor global oil prices closely and have flexible solutions to respond to changes.

Oil is a strategic commodity for Viet Nam, accounting for a large proportion of its export revenues. Last year, PetroVietnam reported total revenues of VND745.5 trillion ($34.8 billion). The group also contributed VND178.1 trillion ($8.3 billion) to the State Budget.

In the context of many international organisations and experts predicting the oil prices will continue their downtrend this year, PetroVietnam has prepared many impact scenarios.

At $60 a barrel, its total revenue will decrease to VND515.1 trillion ($24 billion) and the contribution to the State Budget will decline to VND104.2 trillion ($4.9 billion), a loss of VND74 trillion over 2014.

At $50 a barrel, profit will further decline to nearly VND473 trillion ($22.1 billion) and the State Budget contribution to VND93.1 trillion ($4.35 billion).