OREANDA-NEWS. March 31, 2011. China’s oil and gas companies are set to continue their global mergers and acquisitions drive this year after the country’s top three groups reported strong profits for 2010 and outlined future acquisition plans.

PetroChina and Sinopec plan to spend a combined USD 36bn on exploration and production investments this year. Cnooc, which spent USD 9.9bn last year on oil and gas investments, said that its expenditure would “continue to rise”.

PetroChina in USD 5.4bn Canada gas buy - Feb-11M&A activity to surge in China and India - Feb-10Sinopec to extend Repsol alliance - Jan-04Chevron sells 18% gas field stake to Sinopec - Dec-03Cnooc strikes second US shale deal - Jan-31Yang Hua, Cnooc’s chief executive, said: “In the next few years, we will be more proactive on exploration investments.”

Chinese oil and gas companies accounted for about one-fifth of global M&A activity in the sector in 2010. Based on company forecasts they will continue to be a significant driver of investment this year, at a time when global oil majors, such BP and ConocoPhillips are shedding assets.

The high oil prices of 2010 boosted the bottom line for all three companies. But analysts warned that Sinopec, primarily a refiner, will see refining losses if oil prices remain high.

PetroChina and Cnooc reported record years in 2010. PetroChina raised net profit by 36 per cent to Rmb140bn (\\$21bn), while oil and gas reserves rose 32 per cent.

Cnooc reported net income of Rmb54.4bn last year, up 85 per cent on 2009. The company reported a reserve replacement ratio (the amount added to its reserves relative to the amount extracted) of 202 per cent last year, although the organic reserve replacement is 110 per cent, according to analysis from Citi.

Sinopec’s net profit was Rmb71.8bn, up 13.7 per cent. Proved oil and gas reserves fell slightly from 4.04bn barrels of oil equivalent last year to 3.96bn boe in 2009.

Profits in Sinopec’s sizeable refining segment fell 42 per cent to Rmb15.86bn.

“The negative reserve growth of Sinopec will sound alarms,” said He Wei, oil analyst at Bocom International.

“There is a cloud of uncertainty over Sinopec,” said Gordon Kwan, head of energy research at Mirae Asset Securities, adding that the analysts’ meeting with the company had been “very gloomy”.

“The company’s outlook for this year is very uncertain because a delay in China in raising fuel prices could translate into big refining losses,” he said.

The price of oil in China is controlled by the state, and currently pump prices for refined products are below international market levels. This means that Sinopec, the country’s largest refiner, is forced to operate at a loss when oil prices are high, although the government provides subsidies.

According to people in Beijing, Su Shulin, Sinopec chairman, will soon leave to become governor of Fujian province. Chinese state-owned oil companies divide their ownership structure between an unlisted “parent” company, and a listed subsidiary, whose majority stakeholder is the parent company.

This means the reported results of the listed entities do not entirely reflect the business of the parent.