Spring­ing a leak

Oil firms are suf­fer­ing a dip in rev­enues thanks to weak de­mand

China Daily (USA) - - FRONT PAGE - By ZHENG XIN zhengxin@chi­nadaily.com.cn

China’s oil and gas giants saw their rev­enues slump in the July-Septem­ber pe­riod, ac­cord­ing to their fi­nan­cial re­ports, against the back­drop of a sup­pressed global oil and gas mar­ket and lower do­mes­tic nat­u­ral gas prices.

The third-quar­ter re­ports of China’s big three oil firms — China Na­tional Pe­tro­leum Corp, China Na­tional Off­shore Oil Corp and China Petro­chem­i­cal Corp — showed that CNPC’s rev­enue fell by 3.8 per­cent to 411.4 bil­lion yuan ($60.97 bil­lion), CNOOC by 15.2 per­cent to 30.75 bil­lion yuan, and Sinopec by 3.1 per­cent to 472 bil­lion yuan.

The drop in rev­enues for the big three is a di­rect re­sult of plum­met­ing in­ter­na­tional oil prices, as well as weak eco­nomic growth. So, the glory days of high oil prices have long gone and the down­trend will con­tinue, said an­a­lysts.

Wang Lu, an Asia-Pa­cific oil and gas an­a­lyst from Bloomberg In­tel­li­gence, said cheap oil and low­ered gas prices are the ma­jor rea­sons be­hind the rev­enue de­clines of PetroChina, Sinopec and CNOOC.

Oil firms have shut down high cost wells, re­duced in­fill drilling and rene­go­ti­ated con­tracts to cut costs, said Wang.

Ac­cord­ing to Dong Xi­ucheng, a pro­fes­sor at the China Univer­sity of Pe­tro­leum in Bei­jing, while oil com­pa­nies are strug­gling when prices are fall­ing, it is an op­por­tu­nity for them to re­struc­ture and re­duce costs.

De­te­ri­o­rat­ing busi­ness in oil ex­plo­ration is not all bad, Sinopec has taken ad­van­tage of fall­ing oil prices to lower its pro­duc­tion costs for the down­stream re­fin­ing busi­ness.

It re­ported a six­fold thirdquar­ter profit rise as re­fin­ing gains helped over­come deep­en­ing losses from oil and gas pro­duc­tion, while CNOOC and CNPC wit­nessed de­clin­ing prof­its dur­ing the past three months.

Ac­cord­ing to Wang, Sinopec’s gains in re­fin­ing, chem­i­cals and mar­ket­ing more than off­set its ex­plo­ration and pro­duc­tion losses. CNOOC is a pure up­stream com­pany, so its earn­ings are most ex­posed to low oil prices among the three oil ma­jors.

PetroChina’s re­fin­ing, mar­ket­ing and chem­i­cal seg­ments are weaker and smaller than Sinopec’s, while its ex­plo­ration and pro­duc­tion unit is big­ger than Sinopec’s. That’s why PetroChina had an earn­ings de­cline de­spite im­prove­ments in the down­stream sec­tor, she said.

The State-owned com­pa­nies are not alone among in­ter­na­tional peers strug­gling with plum­met­ing oil and gas prices. ExxonMo­bil Corp has re­cently ex­tended its long­est streak of profit de­clines, while France’s To­tal SA also posted a 25 per­cent drop in third-quar­ter profit.

TONG JIANG / FOR CHINA DAILY

Work­ers in­spect the gas and oil fa­cil­i­ties at an oil­field be­long­ing to China Petro­chem­i­cal Corp in Puyang, He­nan prov­ince.

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