Sinopec Corp, Asia's largest refiner, and rival PetroChina Co Ltd are poised to seek assets overseas to diversify as domestic earnings are depressed by State-controlled prices for processed fuels.

Meanwhile, offshore oil producer CNOOC Ltd is stepping up its latest acquisition bid overseas.

Financial analysts cautioned that the spending spree may not bring the intended results to the business groups as asset acquisition may meet fierce political resistance.

Refining losses resulted in Sinopec reporting a 40.5 percent decline in first-half net income to 24.5 billion yuan ($3.85 billion) on Sunday.

The nation's biggest oil and gas producer PetroChina last week said first-half profit declined 6 percent to 62 billion yuan.

The country's leading offshore oil producer CNOOC Ltd saw its net profit in the same period tumble 19 percent to 31.87 billion yuan.

"The loss came purely from the government's policy of capping retail fuel prices," said Laban Yu, head of Asia oil & gas equity research at Jefferies Hong Kong Ltd. "There is not much Sinopec can do. We believe current low inflation will allow higher refiner margins in the second half and quite possibly a change in the fuel-pricing mechanism."

To combat the declining profit growth, the three oil energy producers all strived to increase their overseas energy business portion to offset the sluggishness in the domestic energy market.

PetroChina said it plans to generate more than half its oil and gas output from overseas projects by 2020 to offset refining losses, while China Petrochemical Corp, Sinopec's State-owned parent, said it will more than double its foreign production by 2015.

"Overseas acquisition is a short cut to balance refining losses, but it's a gradual process and takes a long time because of political scrutiny and availability of assets globally," said Simon Powell, oil and gas analyst at CLSA Ltd in Hong Kong.

"The three energy companies may be very passive in the waiting process for the intended acquisitions to be realized because of rising investor protectionism among the US and European countries," Kingston Securities Research Director Dickie Wong told China Daily in Hong Kong.

China's State oil companies have spent more than $100 billion on assets over the past decade to supply the world's largest energy importer.

CNOOC, China's biggest offshore oil and natural-gas extractor with no refining operations, has proposed the nation's biggest overseas acquisition, offering $15.1 billion for Canada's Nexen Inc. Canadian and US regulators are reviewing the takeover.

"If the CNOOC deal is approved, we can expect more Chinese energy investment in those countries almost right away," said CLSA's Powell.

The other two oil and gas companies are also gearing up. Sinopec is negotiating with its parent to inject the parent group's upper stream energy assets into Sinopec. Sinopec is also partnering with ENN Energy Holdings Ltd to acquire China Gas Holdings Ltd. PetroChina is actively seeking acquisitions in Central Asia, East Africa, Australia and Canada.

"The acquisitions should not put these energy companies' financial positions into jeopardy as energy projects can bring strong cash inflows soon afterwards," Tengard Fund Management Investment Manager Patrick Shum told China Daily in Hong Kong.

"However, the intended increase in energy production may not jump immediately because it takes time to integrate the acquiring companies' existing assets with the newly acquired assets," Shum cautioned.

Bloomberg contributed to this story.

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