Chinese firm surpasses Exxon in oil production

NEW YORK — A big shift is happening in Big Oil: an American giant now ranks behind a Chinese upstart.

Exxon Mobil is no longer the world’s biggest publicly traded producer of oil. For the first time, that distinction belongs to a 13-year-old Chinese company called PetroChina. The Beijing company was created by the Chinese government to secure more oil for that nation’s booming economy.

PetroChina announced Thursday that it pumped 2.4 million barrels a day last year, surpassing Exxon by 100,000. The company has grown rapidly over the last decade by squeezing more from China’s aging oil fields and outspending Western companies to acquire more petroleum reserves in places like Canada, Iraq and Qatar. It’s motivated by a need to lock up as much oil as possible.

The company’s output increased 3.3 percent in 2011 while Exxon’s fell 5 percent. Exxon’s oil production also fell behind Rosneft, the Russian energy company.

PetroChina’s rise highlights a fundamental difference in how the largest petroleum companies plan to supply the world as new deposits become tougher to find and more expensive to produce.

Every major oil company has aggressively pursued new finds to replace their current wells. But analysts say Western oil firms like Exxon Mobil have been more conservative than the Chinese, mindful of their bottom line and investor returns. With oil prices up 19 percent in 2011, they still made money without increasing production.

PetroChina Co. Ltd. has a different mission. The Chinese government owns 86 percent of its stock and the nation uses nearly every drop of oil PetroChina pumps. Its appetite for gasoline and other petroleum products is projected to double between 2010 and 2035.

“There’s a lot of anxiety in China about the energy question,” says energy historian Dan Yergin. “It’s just growing so fast.”

While PetroChina sits atop other publicly traded companies in oil production, it falls well short of national oil companies like Saudi Aramco, which produces nearly 8 million barrels a day. And Exxon is still the biggest publicly traded energy company when counting combined output of oil and natural gas. PetroChina ranks third behind Exxon and BP in total output of oil and natural gas.

PetroChina is looking to build on its momentum in 2012.

“We must push ahead,” PetroChina chairman Jiang Jiemin said in January.

PetroChina has grown by pumping everything it can from reserves in China, estimated to contain more than 6.5 billion barrels. It drilled thousands of oil wells across vast stretches of the nation’s northern grasslands. Some of those fields are ancient by industry standards, dating close to the beginning of China’s communist government in the 1950s.

The commitment to aging fields distinguishes PetroChina from its biggest Western rivals. Exxon and other major oil companies typically sell their aging, low-performing fields, or they put them out of commission.

PetroChina also has been on a buying spree, acquiring new reserves in Iraq, Australia, Africa, Qatar and Canada. Since 2010, its acquisitions have totaled $7 billion, about twice as much as Exxon, according to data provider Dealogic.

Several other Chinese companies have become deal makers around the globe as well. Total acquisitions by Chinese energy firms jumped from less than $2 billion between 2002 and 2003 to nearly $48 billion in 2009 and 2010, according to the International Energy Agency. More times than not, the companies are paying above the industry average to get those deals done.

It’s making some in the West nervous.

In 2005, for example, CNOOC Ltd., a company mostly owned by the Chinese government tried to buy American oil producer Unocal. U.S. lawmakers worked to block the deal, asking President Bush to investigate the role the Chinese central government played in the process. Chevron Corp. eventually bought Unocal for $17.3 billion.

“There’s a resistance to Chinese investment in (U.S.) oil and gas,” Morningstar analyst Robert Bellinski says. “It’s like how Japan was to us in the 1980s. People think they’re going to take us over. They’re going to buy all of our resources.”

That’s unlikely to happen. It doesn’t make economic sense to export oil away from the world’s largest oil consumer.

But the Chinese could make it tougher for Big Oil to generate returns for their shareholders. China’s oil companies have been willing to outspend everyone and that drives up the price of fields and makes it more expensive for everyone to expand.

“You now have to outbid them,” says Argus Research analyst Phil Weiss. “If you can’t, you’re going to have access to fewer assets.”

Longer term, Chinese expansion globally will bring benefits to the U.S. and other economies. By developing as many oil wells as possible — especially in Africa, Iraq and other politically unstable regions — China will help expand supply.

“Frankly, the more risk-hungry producers there are, the more oil will be on the market, and the cheaper prices are,” says Michael Levi, an energy policy expert at the Council on Foreign Relations.

Despite its swift expansion, PetroChina and other Chinese companies still have much to prove to investors, analysts say.

PetroChina’s parent, China National Petroleum Corp., for example, has spent millions of dollars in Sudan to provide highways, medical facilities and shuttle buses for the elderly. Oil companies typically don’t do that. All of that increases the cost of business and minimizes the returns for shareholders.

In 2009 and 2010, PetroChina’s profit margins for its exploration and production business were only about two-thirds that of Exxon Mobil’s. Its stock price has climbed less than 1 percent, in the past year, compared with a 3.7 percent rise in the stock of Exxon Mobil Corp.

“You have to ask yourself: What is the purpose of PetroChina?” Bellinski says. “It is to fuel China. That’s it. Although they’re a public company, I’m very skeptical that they have any interest in shareholder value creation.”

30 Comments

  1. Foolio

    Wow….a country looking out for their own energy needs. Hopefully one day the US will understand that we need to use our own resources without depending on countries that hate us but happily accept our money.

    #1
  2. nick

    Even if it’s publicly traded, it’s hardly “public” when 86% owned by the govt. Also “biggest” is usually a reference to market cap, and XOM’s is ~150b greater than PTR.

    TO your point though, most people don’t realize how insignificant even the largest public oil companies are when compared to their NOC-brethren (Aramco, National Iranian, etc).

    #2
  3. ClearAndPresentThinking

    I expected Exxon to drop to Number 2 when I dumped my shares after the Valdez fiasco. Apparently, my 100-share sell-off wasn’t quite enough to move the market.

    #3
  4. P

    Good. Now maybe all the ignorant big oil haters can attack them instead of Exxon for a change.

    #4
  5. Ivar

    “Longer term, Chinese expansion globally will bring benefits to the U.S. and other economies. By developing as many oil wells as possible — especially in Africa, Iraq and other politically unstable regions — China will help expand supply.”
    ===
    That’s only true if they are expanding supply faster than they are expanding their demand. More likely their demand will outstrip supply and they will buy up greater % of the worlds fuel, causing our fuel prices to increase.

    #5
  6. SUX_2BU

    It’s an apples-to-oranges comparison. Exxon isn’t 86% owned by the US government and doesn’t work to secure oil just for the US.

    #6
  7. Jackalope

    Calling PetroChina “publicly traded” is a stretch. With 86% ownership, the Chinese government calls all the shots and the few shareholders are probably government officials.

    #7
  8. RBBR

    Not talking about “apples to apples” here. We’re fortunate to still have private companies like Exxon-Mobil around instead of state run totalitarian machines like in China and other countries. Big diff. We’re trying to hang on to our freedoms and liberties, fought so hard to keep, while many other countries don’t care about that any more. Sadly, many Americans don’t seem to care about that much either.

    #8
  9. KBinSA

    To ClearAndPresentThinking,

    “I expected Exxon to drop to Number 2 when I dumped my shares after the Valdez fiasco. Apparently, my 100-share sell-off wasn’t quite enough to move the market.”

    Ditto. I bought my shares back a couple years ago.

    #9
  10. ThatGuy

    The Democrats are going to hacked off when they discover that they can’t raise taxes on PetroChina.

    #10
  11. Aunt B

    What “P’ said……….

    #11
  12. SaltWaterCroc

    Of course, Exxon, which makes millions each hour in profits, will keep it’s government subsidies, thanks to the Republicans in Congress.

    #12
  13. independent66

    The word ‘Dhimmitude” is found in the new health care bill;
    so what does it mean?

    #13
  14. helen

    PetroChina’s parent, China National Petroleum Corp., for example, has spent millions of dollars in Sudan to provide highways, medical facilities and shuttle buses for the elderly. Oil companies typically don’t do that.
    ………
    This is not true. Major oil companies often build roads, schools, hospitals, etc. for the locals on international locations. Who makes up this stuff?

    #14
  15. rts

    The article writer seems to think that PetroChina’s work on helping the people of the Sudan with “highways, medical facilities and shuttle buses for the elderly” is a stupid negative. I guess he thinks they should just take the oil, leave a mess and have no concern for the people in Sudan. Going to be a lot of change in the future.

    #15
  16. Just_A_Thought

    I’m sure our commie president is very pleased.

    #16
  17. mark

    It’s impossible to compete with a government subsidised oil company. Just like everything else China does.

    #17
  18. established.facts

    whats the matter Associated Press ? getting paid a little hush money are ya ?
    come to alaska where you and i can talk about this….

    #18
  19. Peter North

    “There’s a resistance to Chinese investment in (U.S.) oil and gas,” Morningstar analyst Robert Bellinski says. “It’s like how Japan was to us in the 1980s. People think they’re going to take us over. They’re going to buy all of our resources.”

    That’s unlikely to happen. It doesn’t make economic sense to export oil away from the world’s largest oil consumer.”

    Makes perfect sense. Remember when the Red Chinese were the enemy?

    #19
  20. kalki

    So Petrochina is bigger than Exxon by spending all the imbalanced trade money we are sending China on acquiring all the oil they can buy? Big whoop. Exxon is not a state-owned company–Petrochina is. That they are willing to go to the scum of the planet like Ahmadinejad & Chavez to buy their oil is an advantage, but then again, look at how Chavez is screwing the Chinese with shorting them on oil quotas that they promised.

    #20
  21. theallknowingone

    What’s the answer RWNJs? More tax breaks for poor ole Exxon?

    What a joke of a party.

    #21
  22. Adler

    Croc thinks legitimate corporate tax deductions available to any company in the US are somehow subsidies to oil companies.

    He’s ODing on the koolaid.

    #22
  23. truth

    Funny how the Chinese Government is aggressive in increasing oil production compared to the Obama administration which is doing as much as possible to stifle US Oil Compnanies (Failure to approve Keystone Pipeline, Drilling Moratorium in the Gulf, etc.).

    Actions speak louder than words – Obama and his communist supporters don’t want the US to be energy independent. They love punishing big oil.

    #23
  24. Craig@Enbridge

    You can’t compare a free market company to one ran by the communists.

    Not to mention, that good old communist account practices.

    Who knows what they pumped. It’s all a shell game in China.

    #24
  25. Realist

    At least the Chinese company won’t demand tax breaks and subsidies from the U.S. government.

    #25
  26. wantingbalance

    The world’s largest oil company is an oil company created by a government to drill, pump and sell oil for its people in order to continue its economic dominance and energy independence. Gee, wouldn’t it be nice if it was the U.S.A. instead of China?

    #26
  27. ddysphemism

    You gotta wonder what PetroChina’s affect on global oil prices are?

    #27
  28. Reason not Religion

    If you think this somehow makes PetroChina a better company to invest in than Exxonmobil, you are not very informed or smart.

    #28
  29. Let's Get Real

    Mark, the fact is, the chinese government is a corporation. Which is why they don’t behave the way our government does.

    #29
  30. priceofcivilization

    won’t all the ignorant texan commie-baters be surprised to learn that commies have outgrown the capitalist swine! maybe the free market isn’t the answer to every problem? maybe our own government shouldn’t be treated the same as other governments? maybe we should even think of it as our friend? maybe there’s a role for the state after all?

    #30