Chinese firm surpasses Exxon in oil production

By Chris Kahn

Associated Press

Published: Thursday, March 29 2012 3:00 a.m. MDT

In 2005, for example, CNOOC Ltd., a company mostly owned by the Chinese government tried to buy American oil producer Unocal. U.S. lawmakers worked to block the deal, asking President Bush to investigate the role the Chinese central government played in the process. Chevron Corp. eventually bought Unocal for $17.3 billion.

"There's a resistance to Chinese investment in (U.S.) oil and gas," Morningstar analyst Robert Bellinski says. "It's like how Japan was to us in the 1980s. People think they're going to take us over. They're going to buy all of our resources."

That's unlikely to happen. It doesn't make economic sense to export oil away from the world's largest oil consumer.

But the Chinese could make it tougher for Big Oil to generate returns for their shareholders. China's oil companies have been willing to outspend everyone and that drives up the price of fields and makes it more expensive for everyone to expand.

"You now have to outbid them," says Argus Research analyst Phil Weiss. "If you can't, you're going to have access to fewer assets."

Longer term, Chinese expansion globally will bring benefits to the U.S. and other economies. By developing as many oil wells as possible — especially in Africa, Iraq and other politically unstable regions — China will help expand supply.

"Frankly, the more risk-hungry producers there are, the more oil will be on the market, and the cheaper prices are," says Michael Levi, an energy policy expert at the Council on Foreign Relations.

Despite its swift expansion, PetroChina and other Chinese companies still have much to prove to investors, analysts say.

PetroChina's parent, China National Petroleum Corp., for example, has spent millions of dollars in Sudan to provide highways, medical facilities and shuttle buses for the elderly. Oil companies typically don't do that. All of that increases the cost of business and minimizes the returns for shareholders.

In 2009 and 2010, PetroChina's profit margins for its exploration and production business were only about two-thirds that of Exxon Mobil's. Its stock price has climbed less than 1 percent, in the past year, compared with a 3.7 percent rise in the stock of Exxon Mobil Corp.

"You have to ask yourself: What is the purpose of PetroChina?" Bellinski says. "It is to fuel China. That's it. Although they're a public company, I'm very skeptical that they have any interest in shareholder value creation."

Follow Chris Kahn on Twitter at http://twitter.com/ChrisKahnAP

AP Business Writer Elaine Kurtenbach contributed to this story from Shanghai.

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