Financial Times: PetroChina could soon be world’s top company

By Ed Crooks
Published: October 19 2007 02:50 | Last updated: October 19 2007 02:50

There is a new runner-up for the title of the world’s biggest company. Soon, there may be a new winner too.

PetroChina, the state-controlled Chinese oil and gas group, this week overtook General Electric to become the world’s second-biggest company by market capitalisation. After it lists on the Shanghai stock exchange, which it is expected to do next month, it could even surpass ExxonMobil to become the world’s most valuable quoted business.

The shares are volatile: they have more than doubled since May, and rose 13 per cent on Monday alone. The thin float arguably makes the market capitalisation a poor guide to the company’s true value. Warren Buffett’s Berkshire Hathaway, which was the biggest international shareholder, has been selling its stake.

But PetroChina’s growth and potential, and above all the scale of its oil and gas reserves, suggest it deserves to rank alongside Exxon.

Its total oil and gas reserves at the end of last year added up to 20.5bn barrels of oil equivalent, according to a new report from PFC Energy, a consultancy. On the same basis, Exxon’s were 22.8bn barrels of oil equivalent, and Royal Dutch Shell’s just 11.3bn.

Largest groups by market cap Rank Group Market cap
1 ExxonMobil US$526bn
2 PetroChina $433bn
3 General Electric $420bn
4 China Mobile $382bn
5 ICBC $338bn
6 Altria $331bn
7 Microsoft $291bn
8 Gazprom $278bn
9 Royal Dutch Shell $273bn
10 Sinopec $270bn
11 AT&T $256bn
12 China Life Insurance $241bn
13 BP $240bn
14 HSBC $232bn
15 BHP Billiton $224bn
Source: Thomson Datastream (As at Oct 17)

PetroChina’s reserves could be revised up significantly following its discovery in May of the Nanpu field in Bohai Bay, which is thought to hold about 7.3bn barrels of oil equivalent.

In Europe and the US, PetroChina is still little known. Perceptions tend to centre on its activities overseas, in countries such as Angola and Kazakhstan where it has been seeking access to new sources of supply.

Much of the publicity it has attracted has come as a result of an intermittently successful campaign to persuade US shareholders to sell their stakes – because of its parent China National Petroleum Corporation’s presence in Sudan. CNPC owns about 88 per cent of PetroChina.

Yet PetroChina is still very largely a domestic company. More than 90 per cent of its oil production and more than 95 per cent of its gas production are domestic.

Its growth in recent years has been led by rapid expansion in its gas business, to meet the soaring demand created by China’s industrialisation. Gas was only about 22 per cent of PetroChina’s production last year, but is rising fast.

The construction of the 4,000km pipeline from the Tarim field in the far west of the country to Shanghai and the markets of the east coast has enabled gas production to grow 84 per cent in the past four years.

Wood Mackenzie, another consultancy, expects that growth to continue at a rate of up to 15 per cent a year over the next few years.

PetroChina’s international operations are held in CNPC Exploration and Development, a 50:50 joint venture with its parent CNPC, which has been picking up assets around the world.

But Norman Valentine of Wood Mackenzie believes its primary focus will continue to be domestic. “I think the cautious and conservative approach to deals that they have shown will continue,” he said. “And I certainly don’t see PetroChina or CNPC being one of the prime movers in any consolidation of the industry.”

Instead, fresh excitement about PetroChina may come from further news about its exploration. In a recent note, Citigroup analysts speculated that, based on stories in the Chinese press, “after the company’s A-share listing is launched next month [PetroChina] is likely to announce a number of substantial oil and gas discoveries.”

The A shares to be listed in Shanghai, in an offer that could raise $10bn or more, could trade at a substantial premium over the price of the Hong Kong-listed H shares, putting the number one spot by market capitalisation within reach. With a flow of good news, that target might well be attained.

Copyright The Financial Times Limited 2007

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