SIA Energy
24 March 2015
Impact of Oil Prices on Chinese NOC Spending
油田秋浓 (Oil Facility in Autumn), Changqing Photography by 许兆超 (Zhaochao Xu)
NOC Profit Vulnerable to Low Crude Prices PetroChina: Operating Profits by Segment (2007-2013)
Sinopec: Operating Profits by Segment (2007-2013)
40
120
40
30
120
30
10
60
-
20 10
60
30
-10 -20
$/b
$/b
$ bn
20
90 $ bn
90
30 -10
2007
2008
Source: SIA Energy
2009
2010
2011
2012
2013
-
2007
2008
2009
2010
2011
E&P
E&P
Refining and Chemicals
Refining
Marketing
Marketing
Natural Gas and Pipeline CNPC Crude Sales Price
PetroChina is vulnerable to low oil prices because its E&P segment contributes to more than 100% of operating profits, given the fact that other segments suffered from losses. sia-energy.com
-20
Source: SIA Energy
2012
2013
-
Chemical Sinopec Crude Sales Price
Sinopec can weather a low crude price environment better: upstream profit suffer, but refining and chemical sectors will profit from cheaper feedstock. Page 2
How Did Chinese NOC’s E&P Revenue Grow? PetroChina E&P Revenue Growth Attribution 2007-2013 120
Sinopec E&P Revenue Growth Attribution 2007-2013
10% 17%
80
60%
60
5%
35 25%
30 $bn
$bn
100
12%
40
13%
25
58%
20 15
40
10 20 -
5 2007 E&P Oil Price Oil Gas Price Gas 2013 E&P Revenue Increase Production Increase Production Revenue Increase Increase
Source: SIA Energy
70% of PetroChina E&P revenue growth was from price increase since 2007 sia-energy.com
-
2007 E&P Revenue
Oil Price Oil Gas Price Gas 2013 E&P Increase Production Increase Production Revenue Increase Increase
Source: SIA Energy
63% of Sinopec’s E&P revenue growth derived from price increase Page 3
CNPC & Sinopec Domestic Oil & Gas Fields
Daqing Xinjiang
Northwest Tarim
Jilin
Tuha Jidong
Yumen Qinghai
Northeast
Liaohe
Dagang Daniudi Changqing
Huabei
Shengli
CBM
CNPC 2013 Domestic Production by Field 1,200
mboe/d
1,000
Oil Gas
Sichuan
Jiangsu Zhongyuan Shanghai Nanyang Puguang South Yuanba Zhejiang Jianghan East China Sea
800 600 400 200 South
Changqing Daqing Tarim Xinjiang Liaohe Sichuan Qinghai Jilin Dagang Huabei Tuha Jidong CBM Yumen Hainan Zhejiang
0
sia-energy.com
Yinggehai Basin
CNPC Oil Field
Pearl River Mouth Basin
CNPC Gas Field Sinopec Oil Field
Qiongdongnan Basin
Sinopec Gas Field
Page 4
Crude Price Influence on Chinese NOC E&P Profits Margin heavily squeezed
PetroChina E&P Cost Per BOE *Assumption: 2015 Brent at $60/b, 2016 at $70/b
110
100
100
90
90
80
80
70
70
60
60
$/boe
$/boe
110
Sinopec E&P Cost Per BOE
50 40
50 40
30
30
20
20
10
10
-
-
Special Gain Levy Exploration Expenses Resources Tax, etc. PetroChina Crude Sales Price Source: 20-F, SIA estimate
*Assumption: 2015 Brent at $60/b, 2016 at $70/b
DDA Production Cost Value-added Taxes
Value-added Taxes Production Cost DDA Sinopec Crude Sales Price
Resources Tax, etc. Exploration Expenses Special Gain Levy
Source: 20-F, SIA estimate
§ NOCs’ domestic assets are mature and declining, and both of their largest oil fields have water cut above 90%. Lifting costs are high and increasing. Overall cost will hit $49/b and $39/b by 2015 for Sinopec and CNPC, respectively. sia-energy.com
Page 5
Crude Price Influence on Chinese NOC E&P Profits Sensitivity analysis
PetroChina E&P Profit Under Different Crude Prices: 2015 Forecast vs 2013
Sinopec E&P Profit Under Different Crude Prices: 2015 Forecast vs 2013
*2013 E&P Gross Profit: $39 bn
*2013 E&P Gross Profit: $12 bn
40
40
24.1
28.8
19.5
11.4
4.5 30
$ bn
$ bn
30
14.9
8.0
20
20
10 14.9
10.3
19.6
24.2
27.7
31.1
34.6
10 11.6
0
0 50
55
60
65
70
75
80
3.9
2.7
9.9
8.1
7.3
8.5
2.6
6.1
9.8
4.3
55
60
65
70
75
80
Impact on 2015 Profit
Impact on 2015 Profit
SIA Profit Forecast on Different Crude Price
SIA Profit Forecast on Different Crude Price
Source: SIA Energy
As per SIA’s estimates, PetroChina’s E&P gross profit will decreased more than 60% at $60/b Brent from the 2013 level. sia-energy.com
0.8 50
5.2
6.4
Source: SIA Energy
Sinopec’s E&P gross profit is much thinner due to higher costs and lower realized oil prices compared to CNPC. It will lose most of upstream profit at $60/b Brent. Page 6
Crude Price Influence on NOC E&P Spending Cut Sinopec Capex by Segment
PetroChina Capex by Segment
50
100
50
100
40
80
40
80
30
60
40
20
40
10
20
10
20
-
-
-
-
30
60
20
E&P Marketing CNPC Crude Sales Price
Refining and Chemicals Natural Gas and Pipeline Source: SIA Energy
E&P Marketing Sinopec Crude Sales Price
$/b
120
$ bn
60
$/b
120
$ bn
60
Refining Chemical Source: SIA Energy
CNPC
Sinopec
E&P – Domestic Oil
12% cut – CNPC has lowered Daqing’s production target from 800 mb/d in 2014 to 640 mb/d by 2019. CNPC will import more ESPO blend from Russia to meet refinery need in northeast China.
15% cut – Like Daqing, Sinopec might lower Shengli’s production target. Given its high cost of $47-49/b, it could be cheaper for the company to import crudes from overseas to meet refinery need.
Refining
18% cut - After a hasty refining capacity additions (695 mb/d) between 2009-2012, CNPC’s refineries are facing regional oversupply challenges. The company will delay some new projects.
14% cut - Sinopec will freeze the green-field refining proposals and only move forward with brown-field expansion and upgrade projects to grow capacity. The NOC focuses on keeping high utilization and improving efficiency.
sia-energy.com
Page 7
Crude Price Influence on China Oil Production Sinopec: Domestic Oil Production 2,400
2,100
2,100
1,800
1,800
1,500
1,500
mb/d
2,400
1,200
Daqing Liaohe Dagang Yumen Source: SIA Energy
Changqing Sichuan Huabei Hainan
Tarim Qinghai Tuha Zhejiang
Xinjiang Jilin Jidong
Shengli Huabei Jiangsu
Zhongyuan Xinan Other Sinopec
2016
2015
2014
2013
2012
2011
2010
2009
2007
2016
2015
0
2014
0 2013
300 2012
300
2011
600
2010
600
2009
900
2008
900
2008
1,200
2007
mb/d
PetroChina: Domestic Oil Productoin
Xibei Henan
Source: SIA Energy
Short- to mid-term: mild decline as a result of production cuts in the onshore mature fields such as Daqing and Shengli Long term: oil production plateau through 2020, afterwards steady decline China will not aggressively cut production due to complicated reasons: 1) crude viscosity and API requires continued EOR efforts; 2) employment consideration; 3) refining configuration not easy to change; 4) control on import dependency. sia-energy.com
Page 8
Chinese NOC Refining Margins in Recent Years Refining Margin: Sinopec vs PetroChina 5
120 100 80
-5
60 -10
40
-15
20
-20
2007
Source: SIA Energy
USD/b
USD/b
-
2008
2009
Sinopec
2010
2011
PetroChina
2012
2013
China Import Crude Price
Compared to CNPC, Sinopec refineries have better location, higher efficiency and petchem integration, higher realized product prices and lower feedstock costs. Sinopec imported 82% of crude feedstock from 36 countries (99 grades) in 2013. sia-energy.com
Page 9
CNPC: Refinery Map
sia-energy.com
Page 10
Sinopec: Refinery Map
sia-energy.com
Page 11
Will the NOCs Be Opportunistic Buyers? Chinese NOCs: Acquisitions by Region $40 $35
US$ bn
$30 $25 $20 $15 $10 $5 $2005 North America Latin America
2006
2007
2008 2009 2010 Asia-Pacific Middle East & North Africa
2011 2012 Europe Russia & Caspian
2013
Source: SIA Energy
US$123.5 bn spent on overseas M&As by three Chinese NOCs between 2005 and 2013 sia-energy.com
Page 12
Will the NOCs Be Opportunistic Buyers? CNPC: Acquisitions by Asset Class Onshore Conventional Shallow Water Deep Water
20
Sinopec: Acquisitions by Asset Class
Integrated LNG Shale Oil and Gas Oil Sands
$20 $18
16
$16
14
$14
$bn
$ bn
18
12
Integrated LNG Deep water
Shale oil and gas
Oil sands
$12
10
$10
8
$8
6
$6
4
$4
2
$2
-
Onshore conventional Shallow water
$-
2005 2006 2007 2008 2009 2010 2011 2012 2013
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: SIA Energy Source: SIA Energy
The low crude price may bring the best acquisition opportunities for North American unconventional oil and gas assets, but the NOCs do not have the appetite—cash flow or bank credit is not the real issue, the problems are: 1) they have not digested the unconventional assets acquired in the previous years, and 2) the top managers are afraid of taking on more risks at this sensitive moment. Small to mid-scale M&As are more likely, especially by Sinopec, but they tend to be de-risked oil assets that contribute to overseas equity production. CNPC, instead, has to prioritize their overseas gas asset monetization plans before make new offers. sia-energy.com
Page 13
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