Chinese energy giant Sinopec defends 41 per cent increase in oil and gas exploration budget, says guided by market forces
- Increase in oil and gas exploration allowance for 2019 follows 35 per cent rise in 2018
- Not convinced Sinopec can economically justify additional upstream investment, say Jefferies’ analysts
China Petroleum & Chemical, or Sinopec, one of the country’s Big Three state-backed oil and gas producers and the world’s largest oil refiner, sought to allay concerns it was putting an order by Beijing to raise domestic output ahead of profitability.
“One of the central government’s requirements for economic reforms is that market forces must play a decisive role when deciding resources allocation,” Dai Houliang, its chairman, said on Monday. “Corporate investment must be based on this principle, and be economically efficient.”
His comments came after the company on Friday unveiled an oil and gas exploration budget of about 59.6 billion yuan (US$8.87 billion) for 2019, an increase of 41.2 per cent over last year. The Big Three have been ordered by President Xi Jinping to raise domestic output to enhance China’s national energy security.
Last year’s budget itself represented a 35 per cent increase over 2017, and has yet to yield any apparent reportable results, especially in natural gas. While the proven reserves of crude oil increased 4.2 per cent last year, proven gas reserves have fallen by 2.7 per cent.
Sinopec is aiming for a 0.3 per cent decline in crude oil output this year, compared with a 1.8 per cent fall last year, while gas production is targeted to rise by 4.3 per cent, slower than the 7.1 per cent growth reported last year.
“We are not convinced that Sinopec has the resources to economically justify this level of additional upstream investment,” Jefferies’ analysts said in a note on Monday. “Surging 2019 upstream [investment is] not matched by production guidance.”