Stop risky overseas acquisitions

China National Petroleum Corp's booth at a trade show in Tianjin in September, 2013.[Photo/China Daily]

China's two State-owned oil giants, China National Petroleum and China National Offshore Oil Corporation, recently made public their profits for the first half of this year.

CNPC made a net profit of only 531 million yuan ($79.6 million), a decline of 98 percent year-on-year, while CNOOC suffered a loss of 7.74 billion yuan; its first half-year loss since 2001.

Undoubtedly, plunging oil prices in recent years are one of the main reasons behind the two oil companies' poor performance. But CNOOC's losses are also related to its bolder and ill-considered overseas acquisitions. Although it did not mention it in its half-year report, all insiders know that CNOOC's acquisition of Nexen remains a major reason behind its fiscal deficit. When CNOOC announced its acquisition of the leading Canadian energy producer for $15.1 billion in 2013, it was the largest overseas acquisition by a Chinese company, and there were concerns that the deal would not be profitable.

An investment bank pointed out in its report at the time that only if Brent crude oil maintained an average price of $93 per barrel could CNOOC hope to make a profit on its investment. Unfortunately, oil prices dived 50 percent the following year. Also, Nexen has encountered endless troubles in Canada, such as its pipeline ruptures in July 2015 that caused huge maintenance costs and fines for CNOOC.

Chinese enterprises made more than 600 overseas acquisitions in 2015, with a total value of $120 billion. However, in the first half of this year alone, acquisitions by Chinese enterprises have already exceeded that figure.

In the past decade, almost no one has been held accountable for the losses China's State companies have suffered in their overseas acquisitions. It is time for the government to tighten its monitoring over the overseas acquisitions by its SOEs and prevent any reckless decisions from causing unavoidable losses to State properties.

-Beijing Youth Daily