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Bloomberg: PetroChina Shares Jump After Bohai Bay Oil Discovery (Update7)

By Michele Batchelor

(Bloomberg) — Shares of PetroChina Co., the nation’s top oil producer, surged after the company announced China’s biggest discovery in half a century.

The stock climbed 14 percent, pushing the market value to HK$1.82 trillion ($233 billion) and overtaking OAO Gazprom and BP Plc to become the world’s No. 3 oil company after Exxon Mobil Corp. and Royal Dutch Shell Plc. The deposit in Bohai Bay has about 7.5 billion barrels of oil equivalent, according to Beijing-based PetroChina’s statement yesterday.

China has stepped up oil exploration to meet increased demand in the world’s fastest-growing major economy and reduce reliance on imports. PetroChina, Asia’s most valuable company, expects to outspend Exxon and Shell this year as it drills deeper and further offshore to make up for declining output at Daqing, China’s biggest and oldest field.

“The potential net asset value boost from the Jidong discovery is too big to ignore,” said Gordon Kwan, research director of China oil and gas at CLSA Ltd. in Hong Kong. Subject to “stringent U.S. Securities and Exchange Commission reserves classification, the discovery size could exceed sibling rival Cnooc’s entire reserve base.” Kwan advised clients to buy the stock “aggressively.”

The stock rose HK$1.24 to HK$10.16 in Hong Kong, the largest gain since the company’s initial public offering in 2000 and the highest close since Jan. 9. About 1 billion shares were traded, the largest volume since Jan. 13, 2004, and more than the daily average of 129 million shares in the past six months.

Drilling Costs

This year, the stock has fallen 7.8 percent, lagging behind the 4.4 percent gain in the benchmark Hang Seng Index, after a 13 percent drop in second-half profit last year on higher drilling costs and wider refining losses.

The Jidong Nanpu field has “geological reserves” of 1.02 billion metric tons of oil equivalent, including “proved reserves of original oil in place” of 405 million tons, “probable” reserves of 298 million tons, PetroChina said in the statement, using industry measures. “Possible” reserves are 202 million tons and “proved reserves of original natural gas in place” are equal in energy content to 112 million tons of oil.

Additional exploration may yield proven oil reserves of 3.3 billion barrels of oil, boosting PetroChina’s net asset value by 15 percent, Kwan said. Cnooc Ltd., China’s biggest offshore oil producer, has total reserves of 2.5 billion of oil, he said

“Certainly in Bohai Bay, nothing like that has been found there for 30 years or so,” said David Johnson, a Hong Kong- based analyst at Macquarie Securities Ltd. “In world terms, it is very large and one of the biggest oil finds for the last 20 or 30 years.” He has a neutral rating on PetroChina shares.

Bach Ho

The last find in the Asia-Pacific region in excess of 1 billion barrels was the 1974 discovery of Vietnam’s Bach Ho field, said Ian Cross, vice president of business intelligence at IHS Inc., an Englewood, Colorado-based research company.

PetroChina’s spokesman Mao Zefeng couldn’t be reached for comment on his mobile phone. China’s markets are closed for a week-long Labor Day holidays.

PetroChina’s field may hold as much as 2.2 billion barrels of oil, China’s official Xinhua news agency reported on its Web site March 28, citing unidentified company officials. The field may produce 200,800 barrels of oil a day in three years, Xinhua said.

The company’s 2006 profit rose 6.6 percent, the slowest pace in four years, to 142.2 billion yuan because of higher drilling costs. PetroChina plans to boost spending 25 percent this year as it expands its oil exploration business, Vice Chairman Jiang Jiemin said.

Oil Output

PetroChina increased oil and gas output in 2006 to a record to meet demand in China. Oil output may rise this year to 2.3 million barrels a day, with gas production reaching 4.56 billion cubic feet a day, PetroChina said March 19. Its refineries will process an estimated 2.25 million barrels of crude a day.

“There are two things for PetroChina, costs are rising and there is a risk that oil prices are going to peak and begin fall away again,” said Macquarie’s Johnson. “So they have to find a lot of new oil to compensate and if the discovery is as big as they say it is, then they would have achieved that and it’s very positive.”

PetroChina is battling to maintain output at Daqing, which started production in 1959. PetroChina’s new field, Jidong, is about 68 percent the size of Daqing and the country’s second- largest field, according to a report from Citigroup Inc.’s analyst, Graham Cunningham.

Daqing Field

“The discovery could transform PetroChina from a company struggling to hold oil production flat to a company with strong crude growth,” Cunningham said today in the report. He raised his price target for the stock to HK$10.80 from HK$8.92.

“The company is applying for assessment for the Jidong Nanpu Oilfield reserves by the relevant government organizations,” PetroChina said in yesterday’s statement. “We will disclose material developments of this project on a timely basis.”

China’s economy expanded a faster-than-expected 11.1 percent in the first quarter after an average growth of 9.9 percent in the past four years. Oil demand in China will increase 6.8 percent to 7.6 million barrels of oil a day this year, the International Energy Agency said in its April 12 forecast.

To contact the reporter on this story: Michele Batchelor in Singapore at [email protected]

Last Updated: May 4, 2007 07:50 EDT

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