PetroChina nears world No.4 spot, but Sudan a worry
By Charlie Zhu and Wendy Lim
SINGAPORE/HONG KONG, March 18 (Reuters) – PetroChina could overtake France’s Total as the world number four corporate oil producer by buying all its state parent’s overseas assets, but investors face new political risk if Sudan fields join its portfolio.
PetroChina, which has few assets abroad and whose crude output is flagging in ageing oil fields, has long been expected to spend billions of dollars to buy the assets to brighten its growth prospect and boost output by up to 15 percent in one hit.
The likely acquisition was flagged officially at the company’s results presentation on Thursday and is expected to take place this year.
Those overseas reserves not already moved into PetroChina’s portfolio by parent China National Petroleum Corp (CNPC) are worth about $6.2 billion, according to Deutsche Bank.
Buying all of them would make China’s dominant oil and gas producer, already the world’s sixth largest listed oil firm by market value, into a player with large-scale hydrocarbon assets around the world, and daily oil and gas output close to 3 million barrels of oil equivalent (boe).
Total, now the world number four among stock market-listed companies by output behind Exxon Mobil, Royal Dutch/Shell and BP, produced 2.6 million boe in the last quarter of 2004.
PetroChina Chief Financial Officer Wang Guoliang said on Friday the firm was considering various proposals to purchase overseas assets from its parent company CNPC.
“It’s extremely difficult to have oil production growth. We hope to gain as much growth as possible from these overseas assets,” Wang said on the sidelines of an investors’ conference in Hong Kong.
Crude oil output at PetroChina, 90 percent owned by CNPC, was flat at 778 million barrels in 2004.
Assuming it would buy all of CNPC’s overseas assets in countries including Sudan, Kazakhstan, Indonesia and Venezuela, it would boost PetroChina’s oil and gas output and reserves by 10-15 percent, according to DBS Vickers analyst Gideon Lo.
Wang gave no details on the acquisition plan, although PetroChina officials have said they may form a joint venture with CNPC to own the overseas assets.
SUDAN WORRY
The key issue concerning cash-rich PetroChina is whether it should buy the assets in Sudan, which analysts say accounted for more than half of CNPC’s total overseas equity oil production of 12.88 million tonnes in 2003 and where output is growing fast.
A two-year old armed rebellion in Sudan has left 5.5 million people in need of food aid there, according to the United Nations, and the United States has been pushing for U.N. sanctions against its oil industry. U.N. Security Council members vowed on Thursday to adopt a resolution within the next week aimed at securing peace in Sudan.
PetroChina, which has shares traded in both Hong Kong and New York, is in dilemma at the moment, analysts say.
“Whether they will inject Sudan remains a big unknown at this stage,” said Lo of DBS Vickers. “If they decide to strip out Sudan from the portfolio, it may reduce the overall attractiveness of the deal. But if they do not, it will increase its risk profile.”
Before it took PetroChina public in 2000, CNPC had planned to include all of its overseas assets in the subsidiary. But it dropped the plan later due to worries that inclusion of assets like the Sundanese fields would hurt U.S. investors’ interest in its stock offer if it did so.
Now, with oil prices reaching record highs and fuelling strong buying interests in oil stocks globally, analysts say the time may be right now for PetroChina – which counts U.S. billionaire Warren Buffett among its investors – to consider taking on the overseas assets.
Investors might support the plan because PetroChina’s earnings and share prices would be hit hard if oil prices fall sharply in the absence of output growth, they say.
“It’s the right direction to buy assets from their parent… They need mergers and acquisitions to sustain profit growth,” said Alan Shum, portfolio manager at China Insurance Group Assets Management Ltd., which has shares in PetroChina.
But a Merrill Lynch research report said on Thursday such an acquisition would be “a double-edged sword” because of uncertainties over “acquisition price and sovereign risks”.
PetroChina, which made a net profit of $12.4 billion last year, or nearly a half of what Exxon Mobil Corp. earned, would have no problem financing such an acquisition.
It had 11.3 billion yuan ($1.37 billion) in cash at the end of 2004 and a modest gearing ratio of around 13 percent. It is also planning a massive Chinese-currency A-share offer in Shanghai, possibly this year.