By Genia Turanova
The Complete Investor

        Our two Chinese energy companies in the Income Portfolio, PetroChina (PTR: $151.14) and CNOOC (CEO: $111.35), have been standouts in terms of revenue and profit growth. For CNOOC, one offshoot has been a steady rise in payouts, at an average annual rate above 20 percent over the past five years and 15 percent over the past three. PetroChina's payouts, though, have stagnated. This should change as strong profit growth sets the table for rewarding investors with higher income along with capital gains.
       Both companies have been buying energy assets abroad, in places ranging from Canada to Australia to Brazil. This disciplined and measured acquisition of energy assets sets these two state-owned energy giants apart from other oil and gas companies, which in the current global financial crisis have hesitated to add to their exploration and production budgets. By contrast, the Chinese companies have used the crisis to their advantage. With China needing to consume ever more energy domestically to support its burgeoning growth, look for additional mergers and acquisitions, especially as China moves - probably sooner rather than later - to unpeg the yuan from the dollar.
        A stronger yuan would be just one position among many for CNOOC and PetroChina, along with rising energy prices and rapid Chinese growth. PetroChina's latest reported quarter was the best since the third quarter of 2008. Earnings per share rose 73 percent vs. the year-earlier period and 50 percent sequentially.
        The company has continued to accelerate its international operations. PetroChina recently signed a development and production agreement for the Halfaya oilfield in Iraq. And in partnership with Royal Dutch Shell it is proposing to acquire a stake in Australia's Arrow Energy Ltd.
        Yet another plus is a new pricing mechanism for refined oil that China recently adopted. And PetroChina's strong exposure to natural gas, while currently unappreciated by the market, should further add to profits down the road.
       Meanwhile, CNOOC - China's largest producer of offshore crude oil and natural gas and one of the largest independent oil and gas exploration and production companies in the world - also enjoyed a strong quarter. Production rose nearly 32 percent over the year-earlier period as new projects came on stream and as producing oil and gas fields turned in a superior performance. Total revenue more than doubled as this sharp rise in production combined with higher realized prices on oil and natural gas.
        CNOOC's growth profile is one of the industry's strongest. The company has four major production areas offshore of China: Bohai Bay, Western South China Sea, Eastern South China Sea, and East China Sea. It's also one of the largest offshore crude oil producers in Indonesia and has upstream assets in Nigeria, Australia, and several other countries. Its leverage to the price of crude is strong because, unlike PetroChina, it's not subject to regulated energy prices.
        Its exploration success will greatly aid its acquisition efforts. In the first quarter of 2010, CNOOC made five successful wildcat discoveries and drilled five successful appraisal wells. One recent discovery, the Penglai 9-1, is a potentially large-sized oilfield.
        As China continues to grow strongly, its huge need for energy will give both PetroChina and CNOOC reliable, growing markets and a strong base for earnings and dividend growth. Both companies have strong balance sheets and remain great ways to capitalize on China's growing energy needs.
        Editor's Note: Genia Turanova is portfolio editor of The Complete Investor, P.O. Box 248, Williamsport, PA 17703, 1 year, 12 issues, $129. Visit the website at www.completeinvestor.com.