© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
March 29, 2012 4:34 pm
China’s state-owned oil companies reported record revenues in 2011 due to high oil global prices, highlighting their growing financial firepower as they purchase oil and gas assets around the world.
Cnooc and Sinopec reported this week that net profits last year were up 29 per cent and 2 per cent, respectively, both hitting record highs. For PetroChina, a subsidiary of CNPC, net profit fell 5 per cent from a year earlier due to high refining losses.
China is the world’s biggest energy consumer and China’s state-controlled oil companies have spent more than $90bn acquiring oil and gas assets overseas over the past five years.
This year the exploration of unconventional oil and gas, which refers to difficult-to-extract fuel trapped in shale rock or coal, will be a focus for all three companies.
“Shale gas and shale oil are very critical resources for China’s future,” said Fu Chengyu, the head of Sinopec who led Cnooc’s $18.5bn hostile bid for Unocal in 2005. “Unconventional gas will be a key investment area for Sinopec and a critical area for us for production [in the long term].”
Unconventional gas has revolutionised the energy landscape in the US, and China is hoping that once it masters the technique these resources could provide a plentiful and cheap new energy source for China.
Despite benefiting from high oil prices globally, Sinopec and PetroChina lost a combined Rmb97.7bn ($15.5bn) in their domestic refining businesses because of low, state-set prices for gasoline and diesel. Beijing kept gasoline and diesel at artificially low prices for much of last year in a bid to cool inflation, a system that in effect forced PetroChina and Sinopec to run their refineries at a loss.
PetroChina reported refining losses of Rmb60.1bn, and net profit of Rmb133bn last year, down 5 per cent from the previous year. Sinopec reported refining losses of Rmb37.6bn and net profit of Rmb73.2bn, up 2 per cent from the previous year.
The huge refining losses will raise pressure on Beijing to hasten the reform of China’s oil-pricing system. China’s economic planning ministry has said it plans to adjust China’s oil pricing mechanism so that domestic gasoline and diesel prices follow international crude prices more closely, but has not given a timetable for doing so.
Under China’s pricing mechanism, fuel prices are theoretically adjusted if crude prices move more than 4 per cent over a 22-day period. In practice however the government has leeway to adjust prices when it chooses.
Cnooc, which is focused on offshore resources and does not have domestic refining operations, saw its net profit soar 29 per cent to Rmb70.3bn, a record high. The company is still dealing with the aftermath of an oil leak last year in its Penglai 19-3 block off China’s east coast. Chinese authorities ordered a total shutdown of the oil-producing block after the accident, and Cnooc management said this week that they did not know when they might be granted approval to resume production.
Analysts said the pace of overseas oil and gas investments by Chinese companies could pick up this year. “There will definitely be more overseas acquisitions,” said Laban Yu, analyst at Jefferies, the investment bank. “Cnooc has this big cash pile burning a hole through its pocket.”
Cnooc, CNPC and Sinopec are all state-owned but have listed subsidiaries in Hong Kong, with the state-owned parent company retaining a majority stake in the listed entity. This structure is common among Chinese state-owned enterprises.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in