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Financial Times: CNPC / PetroChina

By Ed Crooks
Published: March 11 2007 19:05 | Last updated: March 11 2007 19:05

When PetroChina last year became the world’s third-biggest listed energy company by market value, it was a stark illustration of how the world energy order had changed. A company from an emerging economy that is a significant net importer of oil has emerged to challenge ExxonMobil, Royal Dutch Shell and BP.

All three of China’s leading oil companies have been making ambitious international moves. CNOOC, the offshore oil company, caused uproar in 2005 when it bid for Unocal of the US. Sinopec, which has traditionally been stronger in downstream activities, created almost as much interest when it joined of a consortium that bid $2.2bn for exploration licences off the coast of Angola, one of the world’s most important sources of new oil supplies. But China National Petroleum Corporation, with its 88 per cent owned listed subsidiary PetroChina, is bigger than either of them, and has a wider international reach.

PetroChina made what was the biggest ever foreign takeover by a Chinese company, buying Petrokazakhstan for $4.2bn in 2005. After an asset shuffle last year, it now holds most of its overseas assets in a 50/50 joint venture with its parent CNPC, and is active in Venezuela, Algeria, Oman and about a 20 other countries from Azerbaijan to Ecuador.

However, CNPC has retained sole control of its controversial assets in Sudan – an involvement that has drawn strong criticism in the US because of its role in funding the Sudanese military. Campaign groups in the US argue that the close management and shareholding links between CNPC and PetroChina – the two companies share a president, Jiang Jiemin – mean that the latter company should be treated as if it were operating in Sudan.

Most of the group’s production is still domestic: of CNPC/PetroChina’s output of 2.5m barrels of oil equivalent per day, 2m is from onshore China. PetroChina operates the Daqing field, China’s biggest, in the north-east of the country, which provides about 900,000 barrels per day of that production.

The scale of the group’s ambition can be gauged from the fact that it has expressed interest in operating in Canada’s challenging and high-cost oil sands, and recently signed a memorandum for understanding with Statoil, Norway’s state oil company, on offshore developments.

CNPC and PetroChina are expected to look for further overseas acquisitions. Wood Mackenzie, the research firm, suggests a $20bn-$40bn deal would not be impossible. But targets outside the US in that price range are thin on the ground. Targets inside the US would revive the furore over Unocal, with the added twist of the Sudan controversy thrown in.

Copyright The Financial Times Limited 2007

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