Oil subsidiaries look overseas

As the active overseas expansion of Chinese oil companies continues in search of resources, their oilfield-operations subsidiaries are also tapping into foreign markets for sustainable growth.

Daqing Oilfield Co Ltd (DOCL), the operator of the country's biggest oilfield and a subsidiary of China National Petroleum Corp (CNPC), has set a target of 20 billion yuan ($3.1 billion) in revenue from overseas markets by 2015, four times higher than the expected overseas revenue this year.

That will account for half of DOCL's total income by 2015, according to Zhang Baoxi, DOCL's general manager at international business development department. The oilfield operator has estimated that total annual revenue for 2011 will reach 20 billion yuan.

"We have seen robust growth in our international business during recent years. Daqing Oilfield is now in negotiations with one of Indonesia's State-owned oil and gas companies to operate some oilfields there," Zhang said.

Indonesia is Southeast Asia's largest petroleum-producer, with recoverable reserves of 1.165 billion tons and more than 40 million tons of annual production capacity.

In addition, the company is also seeking opportunities to operate an oilfield in the United Arab Emirates. The field has a production capacity of between 10 million and 50 million tons, Zhang said.

So far, the company has entered more than 28 countries including Venezuela, Sudan, Kazakhstan, Oman and Mongolia by providing management, engineering, technical services and petroleum equipment to oilfields.

"About 80 percent of DOCL's overseas revenues are currently generated by providing technology services to foreign oilfields," Zhang said. Payment for part of its services came in the form of "equity" oil, he added.

According to DOCL's website, the company's business in seismic exploration and drilling services realized income of about $65 million in 2008.

The company's move overseas is in line with CNPC's overall development plan, in which overseas markets will account for a much higher proportion of the energy giant's total income going forward. CNPC is the country's biggest energy conglomerate in terms of market capitalization and production, among other measures.

Last week, CNPC's Chairman Jiang Jiemin said the company will accelerate the pace of overseas expansion to establish an "overseas Daqing" - which means achieving equity-based production of 50 million tons of oil equivalent (a unit based on the approximate amount of energy released by burning one barrel of oil) from foreign markets this year to help meet China's demand for oil. CNPC's internationalization is a "must" for the company to develop into a comprehensive international energy company, he said.

In October, Jiang said that the company's overseas oil and gas output is expected to hit 100 million tons of oil equivalent this year, of which equity-based production will account for 50 percent. That's compared with its total overseas output of 86.73 million tons in 2010.

In a recent research note, Fitch Ratings said that the number of mergers and acquisitions will be high next year, particularly for oil companies linked to State-owned enterprises.

Chinese oil companies, which currently have overseas reserves of between 6 and 25 percent of total proven reserves, will continue to be the most active purchasers, and have shown an appetite for larger deals, said Fitch.

"As development in the Middle East is PetroChina's core strategy for international business, we have formed our own business model in the market to build up a Daqing in Middle East," DOCL General Manager Wang Yongchun said.

Prior to 2011, Daqing Oilfield had recorded annual oil and gas output of 40 million tons for three consecutive years.