Maersk Oil cuts production cost as profit falls
Danish oil company Maersk Oil saw its second quarter 2016 net operating profit drop to $131 million, from $137 million achieved in the same period of 2015. Underlying profit was $130 million, down from $217 a year ago.
However, Maersk Oil has described its result as “the return to profit in Q2”, comparing it to the net loss of $29 million in the first quarter of 2016.
The company said the return to profit – from loss in 1Q – was mainly due to an oil price of $46 per barrel compared to $34 in Q1 2016 as well as improved operational performance and reduced costs.
Maersk Oil’s entitlement production of 331,000 boepd was 8.2% higher than in the same period of last year. The increased entitlement production was mainly a result of the Qatar entitlement production increase by 16% due to the decreased oil price giving more barrels for cost recovery.
Increased production efficiency in the UK also contributed well to the higher production, partly offset by lower production in Denmark due to natural decline and maintenance shut-downs.
However, worth noting that Maersk Oil is set to lose the production share from Qatar.
Namely, the Qatari government late in June said the Danish oil firm had not been selected by Qatar Petroleum to participate in the joint venture operating the Al Shaheen field when the existing production sharing agreement expires in July 2017. Qatar Petroleum selected French oil firm Total for the job.
Responding to the news Maersk Oil said the financial impact of not continuing in Qatar was limited as a new contract would have been on less attractive terms compared to the existing terms. However, Maersk Oil said it would lose 40% of its entitlement production and revenue at the current oil price.
On the exploration front, the company said that as a result of the market conditions and disappointing exploration results during recent years, its focus shifted from organic to inorganic growth in 2015. Exploration activities are significantly reduced whereas value-adding acquisition opportunities are being pursued in order to strengthen the portfolio, the company added.
Maersk Oil has slashed its second quarter exploration costs to $47 million – 57% lower than the same period last year when exploration cost Maersk $109 million.
Providing guidance for the full year 2016, Maersk Oil now expects a positive underlying result versus previously expecting a break-even result. A break-even result is still to be reached with an oil price in the range of $40-45 per barrel, the company said.
Maersk Oil also maintains an expected entitlement production of 320,000-330,000 boepd (312,000 boepd). Exploration costs are now expected to be significantly below last year’s $423 million, versus previously expected to be just below costs incurred in 2015.