PetroChina, Sinopec expected to cut back on capital spending
Mainland energy giants shift focus to quality instead of quantity amid flat oil prices, rising debt, slowing growth and excess capacity
PetroChina, which leads the world's companies in capital expenditure, and fellow oil and gas producer China Petroleum & Chemical (Sinopec) are expected to trim spending in the next few years.
Contributing factors are flat oil prices, rising debt, slowing growth in demand and excess capacity in oil refining and chemicals.
Lower spending on expansion and a change in focus to the quality rather than the amount of growth might end seven years of declining returns, analysts said.
"[PetroChina and Sinopec] are openly discussing a shift in strategy, which would place 'quality over quantity' and 'returns over scale' for the first time," said analyst Neil Beveridge, the principal author of a Sanford C. Bernstein research report. "Given the conflicting needs of investors and the state, it remains unclear whether they have the ability to change their ways."
Beveridge said the state-backed firms' total capital expenditure might have peaked at 520 billion yuan (HK$664 billion) in 2012 and projected it would fall to 480 billion yuan this year.
The company will be more focused on quality and efficiency
While the two oil and gas majors budgeted total spending of 537 billion yuan last year, he expected PetroChina to report next month a "significant reduction" in actual spending from the level in 2012 and Sinopec to report flat spending.