PetroChina Sees Opening for Acquisitions

THE WALL STREET JOURNAL

Drop in Oil Prices Has Company Looking for Deals, Projects

MAY 13, 2009

By SHAI OSTER

BEIJING — PetroChina Co., China’s biggest oil company, expects China’s slumping prices will help it rein in costs and sees the global economic downturn as an opportunity to hunt for overseas acquisitions and ventures.

Depressed oil prices and the global credit crises have left smaller oil companies scrambling for cash, creating an opening for Chinese natural-resource companies, which still have access to financing from the country’s robust banking sector. Meanwhile, China is already starting to see a rebound in demand amid signs of economic recovery, PetroChina President Zhou Jiping said on the sidelines of the company’s annual general meeting.

“Overseas M&A is always a key point for PetroChina’s strategic development, and under the current financial crisis with low oil prices, it’s a very good opportunity,” Mr. Zhou said. He also said the company is actively looking at overseas projects, “including enhancing our cooperation with the state oil companies of some key resources countries, such as Kazakhstan, Venezuela, and even Qatar.”

PetroChina executives said they are in talks with international oil majors including Anglo-Dutch Royal Dutch Shell PLC, Britain’s BP PLC and U.S. major Chevron Corp., along with state-owned oil giants in Qatar and Venezuela. Shell, BP and Chevron declined comment on specific deals.

PetroChina’s state-owned parent company, China National Petroleum Corp., recently agreed to buy Kazakh oil producer MangistauMunaiGas in partnership with Kazakhstan’s state-owned KazMunaiGas for $3.3 billion, part of an ongoing push into Central Asia that is challenging Russia’s dominance in the region while opening up new routes for oil and natural gas to China and wider Pacific markets.

PetroChina Chairman Jiang Jiemin said a pipeline carrying crude oil from Kazakhstan to China will be operational by the fall, and the company is developing plans for a pipeline to carry natural gas from Central Asia all the way to Hong Kong.

Mr. Jiang said PetroChina is also pushing ahead in Venezuela. Agreements there could eventually bring in about 800,000 barrels a day once two joint-venture refineries to handle Venezuela’s extra-thick crude oil are finished. Company executives didn’t provide further details on the investments.

PetroChina’s expansion is in contrast to the strategy at China’s main offshore oil producer Cnooc Ltd. In March, Chairman and Chief Executive Fu Chengyu said that falling oil prices made M&A too risky.

Even though PetroChina has managed to outperform some of its international peers, it hasn’t escaped the economic downturn. The company saw profit fall 22% last year, its first such drop since 2001. Oil production fell 5.7% in the first quarter compared with a year earlier, as the company cut production to match weaker demand and higher inventories.

And PetroChina is facing pressure to rein in costs. Mr. Zhou said PetroChina would aim to reduce 2009 capital expenditure by 10% and reduce operating costs by 5%, without revealing any exact figures. In April, the company said capex spending would be 232.2 billion yuan, or about $34 billion at current exchange rates. Company executives said that China’s slumping prices would allow the company to save money. Savings would be reinvested into expanding production.

On Tuesday, shareholders approved plans to issue bonds worth up to 100 billion yuan, or $14.81 billion, to pay for capital expenditure. The company didn’t say when the bonds will be issued. Earlier, executives had said they would need a total of 150 billion yuan to finance production and investment this year. Shares of PetroChina, the world’s second-most valuable oil and gas company after Exxon Mobil Corp., have been rising along with rebounding oil prices and optimism around China’s stimulus package.

But analysts remain concerned about lack of transparency in China’s fuel pricing policy after an 11th-hour reversal on a widely expected fuel-price hike late last week.

—Wan Xu contributed to this article.Write to Shai Oster at [email protected]

Printed in The Wall Street Journal, page B4