China’s big three oil giants PetroChina, Sinopec and CNOOC to spend US$77 billion on boosting output from old fields
- Most of the state-owned energy firms’ capital expenditure will go on lifting production from costly wells and ageing fields
- Analysts say the higher expenditure is likely to worry investors
China’s oil giants aim to spend the most in five years in pursuit of higher energy output. But unlike global rivals investing in top-tier assets, the state-owned producers are trying to boost supply from fields that are either old and high-cost or new and challenging.
China’s big three – PetroChina, Sinopec and CNOOC – are raising combined capital expenditure to about 517 billion yuan (US$77 billion), up 18 per cent from last year. That is almost back to levels seen before oil’s collapse in 2014, after President Xi Jinping ordered them to focus on raising domestic output to bolster national energy security.
Their spending plans contrast with global titans such as Royal Dutch Shell and Chevron, who are keeping a tight grip on spending and returning cash to investors via dividends and share buybacks. Meanwhile, ExxonMobil is pouring money into world-class assets that will raise output in the coming years, including Guyana, Papua New Guinea and Brazil, as well as the Permian Basin.
That is not the case for the Chinese producers working mainly with costly wells and ageing fields at home. PetroChina, the biggest, is focusing its exploration efforts in Xinjiang, where per-well spending could be 10 times higher than other fields, Huatai Financial Holdings estimates.
“Investors have sufficient reasons to question whether the increased spending may generate reasonable returns,” said Laban Yu, a Jefferies Financial Group analyst in Hong Kong. “The oil companies may just be implementing the government’s order, even if that means they produce oil at a high cost.”