Have the Chinese National Oil Companies Paid Too Much in Overseas Asset Acquisition?

Abstract

This paper provides both a quantitative and qualitative analysis of whether the Chinese oil companies have “overpaid” than international oil companies in overseas asset acquisitions. By controlling oil price and a number of asset- and deal-specific attributes that are known to affect the valuation of oil and gas projects, we find that while the Chinese companies did not overpay than international oil companies for the period of 2001-2008, there is statistically significant evidence that they overpaid during the 2009-2016 period (mainly 2009-2013). The counterfactual analysis indicates that the Chinese companies paid, on average, 64 percent more than what an international oil company would have paid for the same assets during the post-2008 period. Interviews with industry experts and qualitative analysis suggest that the overpayment mainly results from a series of mistakes due to lack of experience and rush for projects in a period of high oil prices rather than concerns about energy security or other political considerations. The results raise concerns over the efficiency and corporate governance of Chinese state-owned companies, pointing to the need for further reforms.

Keywords: China, National Oil Companies, asset acquisition, state-owned enterprises, political economy, China model, corporate governance

JEL Classification: G34, Q40, F52