A tidal shift has occured in the oil industry as Exxon Mobil’s (NYSE: XOM) lofty position as the world’s largest publicly traded producer of oil has officially been usurped by a 13-year-old Chinese upstart.
PetroChina (NYSE: PTR) announced Thursday it had pumped 2.4 million barrels of a oil a day last year, surpassing Exxon by some 100,000 barrels.
Part of what has spurned Petro’s recent success is the fact that the Chinese Government owns 86% of its stock and the nation uses nearly every drop of oil Petro pumps. The country’s voracious appetite for gasoline has analysts predicting Petro’s total output could double by 2035.
However the real key to the Chinese oil company’s success lies in its unwavering commitment to its oil fields. Petro differentiates itself from other oil companies by squeezing every last drop of oil out of its fields, even returning to fields first tapped in the 1950s.
Conversely, American companies like Exxon typically sell their aging, low-performing fields… or if no buyers seem interested they simply retire the field, leaving the remaining remnants of oil behind.
Petro’s output increased 3.3% last year while Exxon’s fell by 5%. The American oil giant has also fallen behind the Russian energy company, Rosneft.
Total acquisitions by Petro and other Chinese energy firms have also experienced a big boost, jumping from less than $2 billion in 2002-2003 to nearly $48 billion in 2009-2010, usually paying above the industry average to solidify the deals, a tactic that makes companies in the west very nervous.
Take CNOOC’s (NYSE: CEO), a company primarily owned by the Chinese government, attempted acquisition of American oil producer Unocal in 2005. U.S. lawmakers desperate to block the deal besieged President Bush to investigate the role the Chinese central government played in the process. Eventually the company was bought by Chevron (NYSE: CVX) for $17.3 billion.
Morningstar analysts say there is a deep aversion to Chinese investment in American oil and gas. Overall, people perceive it as an attempt to take us over by buying all of our resources.
But despite fears of a financial takeover, the Chinese expansion has been making it increasingly more difficult for Big Oil to generate returns for their shareholders. Chinese companies are willing to outspend everyone, which drives up the price of fields, blocking the expansion of other companies.
Phil Weiss sums up the situation thusly,
“You now have to outbid them, if you cant, you’re going to have access to fewer assets.”
Until next time,