PetroChina / Cnooc growth in H1 2013

Once upon a time, PetroChina was the world’s most valuable company, clocking in at $1,000bn in November 2007. Those days are over: today, the Chinese state oil and gas producer is worth $235bn. That may be more realistic – ExxonMobil has a market capitalisation of $380bn. PetroChina is a different oil company today, however, judging from Thursday’s first-half results. The question is whether it is a more investible one.

PetroChina and Cnooc, its smaller cousin (market cap $88bn) have the operational momentum that their international oil company peers lack (Sinopec, the third Chinese oil group, reports on Sunday). PetroChina’s total output of oil and gas in the first half was 4.4 per cent higher than a year ago and Cnooc’s was up a quarter; Exxon’s was down 2.7 per cent. Earnings momentum is less impressive, though. PetroChina’s net income increase of 5.6 per cent year-on-year in the first half includes large one-off disposals.

This serves to remind investors that the Chinese groups’ similarities with IOCs are as important as their differences – perhaps more so. They have enormous capital expenditure bills. PetroChina’s capex in the first half was nearly $18bn – on a par with the likes of Exxon or Shell. And they have aggressively joined the race for oil and gas assets. Cnooc bought Canada’s Nexen for $15bn, while PetroChina spent $4bn on gas assets in Mozambique this year, and may take a stake in the huge West Qurna field in Iraq.

Both companies must prove they have the operational heft to manage expansion and keep costs under control. Their close alignment with the Chinese state – strategically as well as in ownership terms – is an advantage, but may not always be so. As an offshore, upstream operator, Cnooc has more going for it than many IOCs. The investment case for onshore, gas-focused PetroChina is less clear-cut.

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