Fitch Ratings-Hong Kong/Shanghai-14 September 2020: China's national oil companies (NOC) - China National Petroleum Corporation (CNPC; A+/Stable) and subsidiary PetroChina Company Limited (A+/Stable), China Petroleum & Chemical Corporation (Sinopec; A+/Stable) and CNOOC Limited (CNL; A+/Stable) - will report stronger profit and a cash flow recovery in 2H20, driven by higher oil prices than 1H20, stringent cost control, capex reduction and an increase in upstream production, Fitch Ratings says.
The NOCs' revenue fell by 22%-32% yoy and EBITDA dropped by 36%-71% in 1H20, mainly due to a 65% drop in the crude oil price in 1Q20 from the previous quarter, and weak refining margins and demand in the downstream business segments. The oil price has more than doubled from the trough in April as of 10 September 2020, leading to our expectations of an improvement in upstream profitability in 2H20. Fitch recently updated our price-deck assumptions for Brent crude to USD41/barrel, USD45/barrel and USD50/barrel in 2020, 2021 and 2022, respectively.
The NOCs' upstream production rose steadily, especially for natural gas, which had a milder decline in prices than crude oil. PetroChina's oil and gas production rose by 5.2% and 9.4% yoy, respectively, in 1H20, despite an 11% cut in capex. PetroChina is focusing on increasing upstream natural gas production to capitalise on its leading position across the gas value chain. CNL's production increased by 6.1% on the back of a 5.6% increase in capex, driven by strong natural gas production growth of 18.1%. CNL is on track to meet its 2020 production target of 505-515mmboe, and its medium-term target to reach 2mmboepd by 2025 will be supported by its new discoveries in the South China Sea and developments in China's computer science major jobs region.
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