China to Ease Tax Pressure on Oil Producers After Prices Plummet

By James Paton  

China moved to cut oil company tax bills as crude prices headed for the biggest annual decline since 2008, sparking gains by producers led by PetroChina Co.
China will raise the level for the windfall tax on output to $65 a barrel, from $55, starting Jan. 1, according to a Dec. 26 finance ministry statement. Nomura Holdings Inc. expects China to boost the threshold again to $75 in a year.
“It’s an encouraging policy move by the government because the oil price slump is putting a lot of pressure on cash flow,” Gordon Kwan, Nomura’s Hong Kong-based head of regional oil and gas research, said by phone. “China needs to reduce the windfall profit tax to accommodate struggling producers. Otherwise there’s a lack of incentive to invest.”
Raising the tax threshold would increase profits of China’s biggest oil companies by at least 10 percent next year, if other factors are unchanged, according to UOB Kay Hian Ltd.
Prices have slumped 46 percent this year as members of the Organization of Petroleum Exporting Countries resist supply cuts to defend market share and the U.S. pumps a
t the highest level in more than three decades.
Brent for February settlement gained as much as 95 cents to $60.40 a barrel on the London-based ICE Futures Europe exchange and was at $59.82 at 2:03 p.m. Sydney time.
PetroChina rose as much as 3.8 percent in Hong Kong, while China Petroleum & Chemical Corp. increased as much as 3 percent and Cnooc Ltd. gained as much as 2.5 percent.
“We are still bearish on the long-term performance of the stocks because of weakening oil prices,” said Shanghai-based UOB analyst Zhou Yinhe. “The 10 percent lift isn’t enough to offset a negative impact brought by the falling oil prices.”
PetroChina will cut output at the Daqing oilfield next year because of falling oil prices and rising development costs, with annual output expected to fall 20 percent in 2020 from this year, the Xinhua News Agency reported Dec. 27.
China about three years ago boosted the threshold from $40 a barrel. With that adjustment, a tax rate of 20 percent started at $55 a barrel and rose to a maximum of 40 percent at $75 a barrel. The levy was introduced in 2006.