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.
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.
PetroChina did not respond to inquiries from the South China Morning Post while a Sinopec spokesman said "the company will be more focused on quality and efficiency of capital expenditure in 2014, and not regard scale expansion as an objective".
Beveridge said the two mainland firms were playing catch-up to Western counterparts in embracing "a new paradigm that big is no longer beautiful", especially given market expectations that oil prices would be flat and operating costs would rise steadily over the next few years.
This would push them to become less capital-intensive, less acquisitive, more cost-conscious and more open to disposal of underperforming assets, he said.
Beveridge expects PetroChina to set a long-term target of 12 per cent return on its capital employed.
Analysts expect the curtailment of capital spending by the two firms to be moderate, with outlays on oil and gas exploration and development remaining steady or rising slightly but more than offset by cutbacks on pipelines, refining and chemicals.
The benchmark one-month West Texas Intermediate crude oil futures on the New York Mercantile Exchange are forecast to trade in a narrow band averaging US$95.60 per barrel this year and US$95.10 next year, compared with US$95.50 last year, according to the average estimate of 42 analysts polled by Bloomberg.
China's demand for crude oil rose 3 per cent last year, the least since 2009, as economic growth slowed.
PetroChina has delayed three new refineries or expansion projects because of overcapacity.
PetroChina spokesman Mao Zefeng said last year the nation's largest producer of oil and gas had adopted a strategy of "lightening" its asset investment burden by selectively opening up its oil and gas exploration and development projects, refineries, petrochemical plants and oil and gas pipelines to investment by domestic and overseas partners.
The company's return on equity peaked in 2005 at 30 per cent and has hovered between 10 per cent and 15 per cent since 2008, while that of Sinopec crested at 20 per cent in 2006 and stood at 12 per cent in 2012, according to Sanford C. Bernstein.
State fuel price controls led to billions of yuan of combined annual operating losses between 2008 and 2012 at the two companies, which refine the bulk of the mainland's crude oil.
Gas price controls caused PetroChina to book 63 billion yuan in gas import losses in 2011 and 2012.
Weaker cash flow from operations and steady dividend payout ratios sent the company's net debt-equity ratio soaring to 36 per cent in October last year from 10 per cent at the end of 2007, while that of Sinopec rose to 56.5 per cent in September from 45 per cent at the end of 2011.
"Sinopec's [capital expenditure] has ramped up ahead of its operating cash flow over 2011 to 2013 as it raised spending across [business] segments … this has stretched the balance sheet even more," a Barclays research report said.
"We believe the company is looking to curtail its capital spend and is also focusing on operational cost control."
ExxonMobil, the world's largest oil firm by market value, made returns on average capital employed of 16 to 25 per cent between 2009 and 2012. Its capital expenditure was US$39.8 billion - equal to 250 billion yuan in 2012 - compared with PetroChina's 352 billion yuan.