M&A

30 March, 2010

PetroChina to spend US$60b on overseas acquisitions

Company wants half its oil and gas to come from abroad by 2020

(BEIJING) PetroChina plans to spend at least US$60 billion in the next decade on overseas acquisitions in the race to control oil and gas fields.

'Ten years ago, PetroChina was a state-owned oil company, but now we have a goal of becoming an international, integrated energy company,' Jiang Jiemin, chairman of the world's largest company by market value, said in an interview on Friday, where he announced the investment plan.

Beijing-based PetroChina spent almost US$7 billion in the last year to buy refineries and reserves in Australia, Canada, Singapore and Central Asia. PetroChina teamed up with Shell last week to buy Australian gas producer Arrow Energy Ltd for US$3.2 billion.

'A total investment of not less than US$60 billion is needed to form our five regions of global oil and gas cooperation, by 2020,' Mr Jiang said. PetroChina spent between US$2 billion and US$3 billion annually in the past five years, so the planned investment 'is clearly a step up,' said Neil Beveridge, an analyst at Sanford C Bernstein Ltd in Hong Kong.

The shares snapped a five-day losing streak in Hong Kong, rising 1.6 per cent to close at HK$8.89, outpacing the 0.9 per cent gain in the benchmark Hang Seng Index.

Longer-term investors are betting on PetroChina's success, driving the shares up 40 per cent in the last 12 months. The Arrow deal would help PetroChina develop the country's coal- bed methane reserves that may be as much as 38 trillion cubic metres, said Mr Jiang, 54. The Chinese company plans to boost its annual output capacity of the fuel to 4 billion cu m within five years, Mr Jiang said.

That could be 20 per cent of China's coal-bed methane output by 2015, which may reach 20 billion cu m by then, according to Sun Maoyuan, chairman of China United Coalbed Methane Co, a unit of China National Coal Group on Nov 2.

PetroChina wants half its oil and gas to come from abroad by 2020, Mr Jiang said in Hong Kong. The company, more than 80 per cent owned by the state, currently gets less than a tenth of its production from overseas.

The energy explorer and refiner plans to produce 400 million tonnes of oil and gas a year by 2020, Mr Jiang said, without stating which countries are favoured for investment. Purchases will be largely funded by the company's cash flow and earnings, he said.

'We aren't going to operate in every oil-producing country,' said Mr Jiang, who was elected as chairman in May 2007. 'It's not the more you eat, the better. You will suffer from indigestion if you eat too much.'

Politics is the biggest risk PetroChina faces in its expansion, Mr Jiang said, without elaborating.

'Tell those who care about PetroChina, PetroChina will never ever be a threat to anybody,' said Mr Jiang, previously a vice-governor of Qinghai province in China's far west.

China wants to triple the use of gas to about 10 per cent of energy consumption by 2020 to reduce use of coal. The country plans to import 68 billion cu m of the cleaner-burning fuel a year from Russia through two pipelines, Mr Jiang said. That's about 80 per cent of China's gas production last year.

PetroChina's parent, China National Petroleum Corp, has been in talks with Russia on gas imports for more than a decade and has made 'good progress' over the past two years with an initial pricing agreement signed at the end of 2009, Mr Jiang said.

The company will focus on its oil and gas business and won't invest in renewable energy including wind and solar for now, he said.

China's dependency on imported crude will continue to rise, he said. The country's annual domestic oil production is unlikely to exceed 200 million tonnes by 2020 while demand may increase to about 600 million tonnes by then, Mr Jiang said. -- Bloomberg