Challenges and Growth with Chinese Oil: CNOOC Limited (ADR) (CEO), PetroChina Company Limited (ADR) (PTR), ConocoPhillips (COP)

A Chinese partner

ConocoPhillips (NYSE:COP) is a minority partner with CNOOC in China and has borne some of the costs of a recent spill. Like CNOOC, ConocoPhillips (NYSE:COP) is an upstream firm. In midst of the modern resource constraints, the firm has placed a serious portion of its new developments outside of the in and outside of the U.S. It has interests in Canada’s oil sands, Malaysia, and China in addition to America’s shale assets.

ConocoPhillips (NYSE:COP) does carry some debt with a total debt to equity ratio of 0.45. It is a very large company with an expected production of 1,475 to 1,525 million barrel oil equivalents per day in 2013. The downside to being this large is that it has become increasingly difficult to find new reserves to replace old production. In addition, its upstream focus leaves it dangerously exposed to the volatility in raw crude prices. Even at a low price to earnings ratio of 8.6, the lack of downstream diversification is cause for hesitation.

Conclusion

Every nation is unique and China is no exception. CNOOC focuses on upstream operations. The firm has little debt and benefits from the backing of the one of the world’s few super powers.  Its ability to use the government to open up new fields in the South China Sea makes it an especially attractive firm.

PetroChina is best ignored because it is forced to sell gasoline at a government mandated loss. This is not expected to change as a cheap gasoline price is a great way for the communist party to keep the masses happy. ConocoPhillips (NYSE:COP) recently spun off its refinery operations into a separate firm. The resulting lack of upstream diversification and dependency on volatile crude prices make it a firm best left for another day.

The article Challenges and Growth with Chinese Oil originally appeared on Fool.com and is written by Joshua Bondy.

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