China's oil giants buoyed by higher prices as output stagnates

By Aibing Guo on 4/27/2017

HONG KONG (Bloomberg) -- Oil’s recovery is helping ease the pain of shrinking output by China’s biggest energy producers.

PetroChina Co., the country’s largest producer, reported first quarter earnings swung to a profit thanks to the surge in prices, even as total output fell 6.3% from a year ago. China Petroleum & Chemical Corp., the refining giant known as Sinopec, saw net income more than double while production dropped 2.4%.

Along with Cnooc Ltd., China’s biggest offshore explorer, the state-run firms are struggling to halt a drop in domestic crude output that’s pushed the country’s imports to a record, overtaking the U.S. as the world’s largest buyer. And as China’s big three raise combined spending for the first time in four years, the focus is beginning to shift to natural gas as the government of President Xi Jinping seeks to cut pollution from coal.

“Higher capital spending may help output in 2018 or 2019, but no rebound is expected to show up for 2017,” said Laban Yu, an analyst with Jefferies Group LLC in Hong Kong. “Obviously higher oil price did all of them a big favor and helped lift their earnings out of the disaster they experienced a year ago.”

Explorers globally are regaining their footing with oil prices stabilizing near $50/bbl after a two-year crash as the Organization of Petroleum Exporting Countries leads an international effort to trim output. France’s Total SA posted a 56% increase in first-quarter profit, also Thursday, beating analyst estimates as prices rebounded and it cut costs while boosting production.

Oil down, gas up

China’s total crude production fell 6.8 percent in the first three months of the year to average 3.92 MMbopd, extending last year’s record pace of declines. Natural gas output, meanwhile, was up 3.4% and hit a record in March.

The big three laid out their plans for 2017 when they reported annual results last month. While PetroChina expects to see its crude production fall a second year, it’s sustaining natural gas output. Sinopec is aiming to pump about 15% more gas, while global oil production falls 3%. Cnooc forecast annual output to post a second drop this year, though its first quarter production rose compared to the previous three months.

Cnooc saw revenues rise 56% to the highest in a year and a half. Though the company plans to increase spending in 2017, capital expenditure in the three month period dropped almost 11% to 8.7 billion yuan. Chief Financial Officer Zhong Hua attributed the decline to lower spending overseas. The company doesn’t report quarterly net income.


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