Chinese overseas oil investments unprofitable
China's State Owned Enterprises (SOEs) in the oil sector are making poor overseas investment decisions according to a new report.
The report, from the China University of Petroleum, claims that two thirds of the three Chinese oil majors' overseas investments have sustained heavy losses. Citing the China Petroleum and Chemical Industry Association (CPCIA), the University suggests that the $70 billion invested by CNPC, Sinopec, and CNOOC, in as many as 144 overseas projects, may have been poorly managed.
The “shocking losses” have been attributed to wrong decisions, investment failure, the lack of comprehensive risk assessment and arrogance. The report appears to be borne out by the latest news that CNPC subsidiary, Great Wall Drilling Co., is set to lose around Y1.2bn ($187m) as it terminates projects in politically unstable Libya and Niger.
Last year alone mergers and acquisitions from the three companies was over $30 billion, making up about 20% of the global upstream mergers and acquisitions. The paper also claimed that of the 70 million tons of crude oil overseas owned by the three majors, as little as 5 million tons were shipped back to China, one twelfth of its overseas stakes. China's oil consumption reached 420 million tons in 2010, and of that 239 million tons were imported.
The National Development and Reform Commission backed increased outbound investment at the beginning of this year, but as the news of under-performing SOE investments emerged to the public, the State-owned Asset Supervision and Administration Commission have promised to tighten controls on SOEs. The increased supervision from SASAC will limit the number of unprofitable and non-strategic investments made by the Chinese giants.
