HONG KONG -- If oil prices are heading down, what would you want with a bloated, state-owned oil company that depends on one aging field for more than half its production?

Fund managers and analysts are asking that very question two weeks before the scheduled IPO in New York and Hong Kong of China's largest state-owned oil company,


, a renamed subsidiary of

China National Petroleum

, or CNPC.

Beset by human rights concerns in the U.S. over its parent's 40%-owned project in Sudan, as well as a gaffe by underwriter

Goldman Sachs

, which sent out an email to investors that might have violated U.S. securities law, PetroChina's offer has been in trouble anyway. It was originally slated to be China's largest-ever IPO, at $10 billion, but the deal has been cut to less than $2.7 billion, say managers and analysts who have seen the prospectus. And despite Thursday's announcement that

BP Amoco


would invest $1 billion to take a 2% stake in the company, investors are worried about the IPO, which is scheduled to start trading April 6 in New York and April 7 in Hong Kong.

There are a few big "ifs," however. Even before the Goldman Sachs embarrassment (about which Goldman has declined to comment), Chinese oil was hardly the flavor of the month. There is no New Economy angle in sight, and investors were already so hostile late last year to the roadshow of the big offshore oil monopoly that the government cancelled the whole deal.

Also working against the offer is the company's concentration of oil assets. It controls 70% of Chinese oil production, but half of that is dependent on one aging field, at Daqing in China's northeast. That's why the company is so eager to come to market.

"The pressure is now on CNPC to accelerate new oil discoveries in order to replace its aging northeastern fields," said a recent report on China's oil sector by

Credit Suisse First Boston

. "CNPC cannot afford many more years without a significant oil find."

Then there is fund managers' standard fear that this is just another inefficient company trying to dump overpriced assets with a public besotted by China's sheer size, but not fully aware of how poorly Chinese state firms perform.

Consider the following: In 1998, PetroChina's parent CNPC had $61 billion in assets, which made it the fourth-largest oil company in the world. Among the companies ahead of CNPC was



Exxon Mobil

(XOM) - Get Report

), with $91 billion in assets.

If you look at earnings, the two aren't even close. CNPC made just $112 million on its assets that year, compared with Exxon's earnings of $6.4 billion. To be fair, CNPC's assets were calculated using Chinese accounting methods, but the overall story is clear. Like most Chinese state-owned companies, CNPC is as much an employment vehicle for hundreds of thousands of unnecessary workers as it is a profit-making enterprise.

"It has a lot of social responsibility in China," said Fook Cheong, oil analyst for

Dresdner Kleinwort Benson

in Singapore. That's a nice way of saying it can't fire people, as a more efficient company would. If oil prices are falling, "the only bottom-line growth will come from cost cutting, and you must have a lot of faith in the company to believe in cost cutting," he said.

Dresdner figures that PetroChina's parent, CNPC, is worth $25 billion to $28 billion. If the IPO sells 10% of the company and raises $2.7 billion, that would mean the shares are being offered fully valued.

Fund managers are getting the message. "We are in no hurry

to subscribe. There are two other big oil issues coming this year," said Flavia Cheong, a China fund manager at

Aberdeen Asset Management

in Singapore. Among her concerns are China's highly protected, regulated environment, which could cap oil prices below profitable levels, as well as a desire to make sure that "money will not be funneled to the parent," as it has been with other state-owned company IPOs in China.

PetroChina faces a huge task of corporate reorganization. Its parent, CNPC, had been strictly an upstream company, with refining, petrochemicals and retailing operations restricted to another state company,


(imports and exports go through yet another company, and offshore business through a fourth). In a massive asset shuffle in 1998, the government created two integrated oil and gas companies out of the two specialists, assigning each a monopoly of roughly half of China. CNPC got the poorer part, Sinopec the rich coastal provinces. The import and offshore specialists remain in place.

In addition to an expected second attempt to spin off its offshore oil company,

China National Offshore Oil

, the government may also try to sell shares in Sinopec later this year, said Aberdeen's Cheong. That makes jumping all over PetroChina right now less than attractive.

For those keen on buying fully valued oil stocks, there is currently no shortage of choices. Exxon Mobil now trades at 34 times earnings. In the cheaper range is



, trading at 27 times earnings with a 3% dividend yield, and


(TX) - Get Report

, with a P/E of 24.7 and a yield of 3.4%. Not sexy, necessarily, but neither is PetroChina.