China Big Oil’s Upstream Bet is Paying Off

China Big Oil wrapped up a first half that rewarded exploration & production and punished refining.

PetroChina Co. and Cnooc Ltd. on Thursday posted stronger earnings, while Sinopec, the fuel-making behemoth, said earlier in the week that profit slid 24% from a year ago. All three delivered on commitments to increase spending, seeking to fulfill President Xi Jinping’s demand for higher energy output.

Investors seemed pleased, especially with Cnooc’s cost cutting. The company led gains on the Hang Seng Index in Hong Kong on Friday, rising as much as 6.5%. PetroChina added as much as 4.5%.

Here are some highlights from their January-June results:

Spending Spree

Unlike global titans such as Royal Dutch Shell and Chevron, who are keeping a tight rein on spending and returning cash to investors, China’s state-owned giants are splurging to expand output. While the trio aren’t yet at the midway mark of their annual capex targets — spending tends to be concentrated in the second half — they have significantly increased from last year.

Growing Output

All three are steadily increasing output, which hasn’t come easy considering that many of their oil fields back home are old and costly. That helps explains why they’re betting big on natural gas. Cnooc’s net production rose to a record in the first half, while PetroChina posted a double-digit growth in domestic gas supply. Gas output by Sinopec, officially known as China Petroleum & Chemical Corp., gained 7% despite overall production rising just 0.9%.

Cost Control

Cnooc’s cost-cutting shone through. The offshore explorer further lowered its all-in cost to $28.99/bbl from $31.83 a year ago, helping offset the impact of falling oil prices on its operations. “Cost control continues to be excellent,” analysts at Sanford C. Bernstein said in a note.

PetroChina is getting some reprieve from importing natural gas. Those losses narrowed to the least since 2016, which the company attributed to higher domestic output trimming overseas purchases. The top producer sells gas to domestic users at state-controlled prices, which tend to be lower than its costs of importing gas through long-term supply contracts and pipelines from Central Asia.


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