CNPC denies closing six overseas oil projects

China National Petroleum Corp (CNPC), the country’s largest oil and gas producer, Monday denied media reports which said that it has terminated six exploration projects in Libya and Niger due to the ongoing political turbulence.

Securities Daily reported Monday that Great Wall Drilling Co (GWDC), a wholly owned subsidiary of CNPC, has closed six operations in Libya and Niger due to the local political turmoil.

“The report is inaccurate. The six projects are only suspended temporarily given the local political environment, and they might be resumed in the future,” a spokesman with the CNPC told the Global Times.

And he said that GWDC would see a revenue decline of an estimated 1.2 billion yuan ($187.49 million) this year.

The country’s three oil giants, CNPC, China Petrochemical Corp and China National Offshore Oil Corp, have stepped up their search for overseas resources in the past, in order to meet energy demand.

Data from the China Petroleum and Chemical Industry Association shows that the three oil giants’ merger and acquisition (M&A) activities amounted to a record high of $30 billion in 2010, or 20 percent of the total global M&A volume in the upstream sector of the industry.

However, low returns on overseas investments in the energy sector have raised concerns that domestic companies lack experience in managing overseas assets. A report from China University of Petroleum last year said that among all the overseas projects of the three oil majors, some two-thirds have suffered losses.

Zhu Fang, deputy director of market analysis at the China Petroleum and Chemical Industry Federation, noted that China’s outbound investment only began to take off several years ago, and it will take time before overseas projects can generate any returns.

Given that most of the crude oil produced by overseas operations is imported back to China, profitability of these projects might be affected by the low domestic oil prices, he said.

“Most of China’s overseas oil projects are located in South America, Africa and Middle East, which has posed political risks to the security of the overseas assets,” Zhu said.

Global Times

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