China oil giants seeking to join spree of global energy deals

AIBING GUO

HONG KONG (Bloomberg) -- PetroChina Co., the country biggest oil and gas producer, signaled it’s looking to join a wave of global energy deals as crude’s collapse makes it the right time to buy and sell assets.

“Low crude prices are a good opportunity for acquisitions,” Wang Dongjin, the company’s president, said at a briefing on Thursday after it reported a 63% slump in profits during the first half of the year. “Timing is really important now. We have been tracking some assets for a while and are waiting for the time to come.”

Oil’s collapse to a six-year low has prompted a wave of acquisitions across the energy industry. Three of the last five quarters have exceeded $160 billion in deal volume, surpassing even the late 1990s, a period when many of the world’s largest energy corporations were formed, according to data compiled by Bloomberg. While China’s big three oil companies have sat out this latest round, China Petroleum & Chemical Corp. also said Thursday it’s seeking overseas assets, signaling that at least two of them are now ready to join the spree.

PetroChina’s net income dropped to 25.4 billion yuan ($4 billion), or 0.14 yuan a share, in the six months ended June 30, from 68.1 billion yuan, or 0.37 yuan, a year earlier, the Beijing-based company said Thursday in a statement to the Hong Kong stock exchange. The average of three analysts estimates compiled by Bloomberg was a profit of 30.3 billion yuan.

Profit Drag

While the fall in prices is presenting an opportunity for deals, its been a drag on profits as the company depends on exploration and production for most of its revenue. Crude has tumbled as producers sustain output to protect market share, worsening a global oversupply, amid concern that demand growth from China is stalling. Brent, the benchmark for about half the world’s crude, averaged about $59/bbl in the first half of the year, down 45% from the same period in 2014.

“The global oil price is likely to keep fluctuating at a low level,” the company said in its earnings release. “The growth of domestic demand for oil and gas will slow down and the market competition will get tougher.”

PetroChina produced 736 MMboe in the first half, up 2.9% from a year earlier. The company’s average realized crude price fell 45%, while average natural gas prices rose 0.4%. Sales dropped 24% to 878 billion yuan, according to the statement. Capital expenditure declined 33% to 61.7 billion yuan.

The Bloomberg Commodity Index of 22 raw materials fell to a 16-year low this month and is down 17% this year as a glut of raw materials from oil to iron ore meet cooling demand from China, the world’s biggest consumer of energy, metals and grains.

PetroChina’s domestic rivals were also struck by oil’s fall. Cnooc Ltd.’s first-half income dropped 56%, while the decline at China Petroleum & Chemical Corp., Asia’s biggest refiner known as Sinopec, was softened to 22% because of better fuel-making margins over the period.