Skip to main content

The Globe and Mail

PetroChina and CNOOC: operational momentum, but less impressive earnings

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

Once upon a time, PetroChina Co. Ltd. was the world's most valuable company, clocking in at $1-trillion (U.S.) in November, 2007. Those days are over. Today, the Chinese state oil and gas producer is worth $235-billion. That may be more realistic – Exxon Mobil Corp. has a market capitalization of $380-billion. PetroChina is a different oil company today, however, judging from Thursday's first-half results. The question is whether it is a more investible one.

PetroChina and CNOOC Ltd., its smaller cousin (market cap $88-billion) have the operational momentum that their international oil company peers lack (Sinopec International Petroleum Exploration and Production Co., the third Chinese oil group, reports on Sunday). PetroChina's total output of oil and gas in the first half was 4.4-per-cent higher than a year ago and CNOOC's was up a quarter; Exxon's was down 2.7 per cent. Earnings momentum is less impressive, though. PetroChina's net income increase of 5.6 per cent year-on-year in the first half includes large one-off disposals.

Story continues below advertisement

This serves to remind investors that the Chinese groups' similarities with IOCs are as important as their differences – perhaps more so. They have enormous capital expenditure bills. PetroChina's capex in the first half was nearly $18-billion – on a par with the likes of Exxon or Royal Dutch Shell PLC. And they have aggressively joined the race for oil and gas assets. CNOOC bought Canada's Nexen Inc. for $15-billion, while PetroChina spent $4-billion on gas assets in Mozambique earlier this year, and may take a stake in the huge West Qurna field in Iraq.

Both companies must prove that they have the operational heft to manage their expansion and keep costs under control. Their close alignment with the Chinese state – strategically, as well as in ownership terms – is an advantage, but may not always be so. As an offshore, upstream operator, CNOOC has more going for it than many IOCs. The investment case for onshore, gas-focused PetroChina is less clear-cut.

Report an error
Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨