China changes policy on foreign oil operators


The policy of China on foreign oil and gas operators is about to change. China will allow private and foreign firms to explore its domestic oil and gas resources under an interim trade deal to be signed next week with the United States

Companies with net assets of at least 300 million yuan ($43 million) can apply for licenses as part of “a major reform,” the resources ministry said at a briefing on Thursday. Previously, only state-owned firms have been eligible for permits, an approach that has retarded efforts by Beijing to expand domestic production and cut its enormous import bill.

More broadly, China has adopted a slew of measures in the last couple of years to help ease commercial frictions with the U.S., including opening up its financial sector to foreign ownership and taking steps to ban forced technology transfers.

Oil and gas was one of the sectors removed from the list of industries that restrict overseas investment in July. China has previously barred foreign and private oil operators from receiving exploration licenses. The latest details from the resources ministry helped lift the stocks of a swathe of firms that service exploration and production in China.

While the nation’s three major state oil companies have raised spending to boost output – heeding calls from President Xi Jinping to bolster the nation’s energy security – China’s crude imports have continued to break records. Its gas imports have also grown apace as the nation seeks to swap out dirty coal for the cleaner burning fuel across residences and industry. With its new policy, China will welcome foreign oil operators who can ease this problem.

“The sluggish growth of oil and gas production in China was partly due to the monopolistic nature of the upstream segment,” said Dennis Ip, a head of research at Daiwa Capital Markets. “The government’s intention is to introduce competition and encourage technological innovation in the E&P segment and we believe this can help to lower the production costs of upstream players over the long run.”

At its briefing, the ministry also detailed measures to reform the management of natural resources and the transfer of mining rights.

Source: Bloomberg and combined sources