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China oil companies cut capital spending to remain profitable amid market slump

BEIJING — Three listed subsidiaries of major Chinese state-owned oil companies are cutting back on capital expenditures as their slumping crude oil production amid prolonged weakness in oil prices.

Capital expenditures on oil development and refineries by PetroChina, China Petroleum & Chemical (Sinopec) and CNOOC from January to September declined 20-30% compared to the same period a year previously. But their profitability continues to suffer from their relatively high cost of crude oil production.

PetroChina’s July-September revenue fell 3.8% from a year ago to 411.3 billion yuan ($59.7 billion), while net profit plummeted 76.9% to 1.2 billion yuan. The company’s earnings have remained weak, but the business performance has hit the bottom as crude prices have bottomed. Revenue for the January-September period was 1.15 trillion yuan, down 11.9% from a year ago, and net profit 1.7 billion yuan, down 94.3% from a year ago.

The company managed to secure a profit by limiting capital expenditures. During the first nine months of the year, investment in refineries totaled 114.1 billion yuan, down 23% from the level a year ago.

It also suspended production at oil wells with low profitability and successfully reduced the production cost per barrel of oil by 9.9%. However, its oil and natural gas production division booked an operating loss of 3.9 billion yuan.

The company has said it will continue to cut costs of production in all divisions from upstream to downstream, and seek to raise efficiency of operations in a balanced manner.

China Petroleum & Chemical (Sinopec)’s revenue for the July-September period fell 2.4% year-on-year to 484.7 billion yuan, but net profit grew six-fold to 10.1 billion yuan, as its petrochemical division regained profitability after the Chinese government introduced a minimum price limit to curb a fall in petrochemical product prices.

Revenue for the January-September period fell 11.3% to 1.36 trillion yuan, while net profit grew 11.2% to 30.1 billion yuan.

Sinopec

also benefited from reduced investment, which included 44.6 billion yuan, down 34% from a year ago, on refineries and 1.2 billion yuan, down 64%, on oil exploration, for the January-September period. This helped the petrochemical division book 42.4 billion yuan in operating profit, which drove the recovery.

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