Opening of China’s Oil And Gas sector to increase competition, says S&P

January 9, 2020

HONG KONG -- Opening of oil and gas exploration and production (E&P) will increase market participation and competition in the upstream segment, but global ratings agency Standard and Poors says it sees limited impact of the new regulations on China National Petroleum Corp. (A+/Stable/--), China Petrochemical Corp. (A+/Stable/A-1), and China National Offshore Oil Corp. (A+/Stable/--) over the next two to three years.

"That is given the dominant domestic market positions of these three big national oil companies (NOCs), with most of the acreage being held by them," S&P says.

"We believe opening up of the sector will increase the number of market participants in the long run, raising China's oil and gas production," says S&P, pointing out that the move is consistent with the Chinese Government's aim to raise domestic oil and gas production.

"China currently imports 70% of the crude oil and 40% of the natural gas that it consumes, posing energy security risk," says S&P. In 2018, the Government asked the three NOCs to increase their domestic E&P activities to enhance national energy security.

S&P says the  new regulation will also enhance the transfer of oil and gas acreage among E&P companies, improving resource allocation efficiency. "Currently, the NOCs hold most of the acreage, and they may not invest in exploring all of it."

The new regulation stipulates that exploration rights will last for five years. These rights can be renewed four times for five years each, but the acreage will be reduced by 25% upon each renewal based on the first exploration rights.

"We believe this will boost E&P companies' exploration efforts and speed up asset turnaround."

Today, China's Ministry of Natural Resources announced that companies registered in China with a net asset value of more than Chinese renminbi 300 million are eligible to obtain oil and gas mining rights. (ATI).