PetroChina Moves Into European Refining as Jiang Builds Global Oil Company

PetroChina Co., China’s biggest energy producer, gained a foothold in Europe after agreeing to set up a joint venture with Ineos Group Holdings Plc to accelerate its global expansion.

PetroChina and Ineos, the U.K.’s largest privately-held company, will refine and trade oil products at the Grangemouth refinery in Scotland and the Lavera plant in southern France, according to a statement yesterday. Both have daily oil- processing capacities of about 210,000 barrels, it said.

The Beijing-based company is investing in refineries to raise fuel production while expanding exploration and overseas cooperation. PetroChina aims to spend at least $60 billion in the next decade on overseas acquisitions, Chairman Jiang Jiemin has said. That will help offset the effect of higher interest rates as China seeks to tame inflation.

“With global oil prices and refining margins rising, PetroChina is keen to acquire oil and gas fields and refineries overseas to boost production and profits,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong. “The Ineos deal is also a hedge against the uncertain domestic product pricing policies amid China’s inflation clampdown.”

At the same time, European oil companies such as Royal Dutch Shell Plc and Total SA are selling plants after weak demand for fuels caused by the worst recession since World War II cut refining profits.

Shares of PetroChina rose 0.2 percent to 11.13 yuan in Shanghai trading at 9:38 a.m. local time, compared with the 0.2 percent decline in the benchmark Shanghai Composite Index.

First Half

PetroChina will provide Ineos with an “injection of capital,” it said in the statement, without being more specific. The venture is expected to be set up in the first half.

UBS AG acted as sole adviser to PetroChina, while Goldman Sachs Group Inc. and Morgan Stanley advised Ineos.

The joint venture will safeguard more than 2,000 jobs at Grangemouth, Scotland’s only oil-processing plant, Finance Secretary John Swinney said in an e-mailed statement.

“Although we’re the biggest independent refiner in Europe, we’re relatively small in global terms and we’re now partnering up with probably the world’s biggest,” Ineos’s Group Director Tom Crotty said in an interview. “From their point of view it’s a great entry into Europe.”

The agreement will give Ineos a “significant” boost to its efforts to deleverage, according to Crotty. “We’re not talking small numbers here.”

China National Petroleum Corp., PetroChina’s parent, also agreed to share refining technology and expertise with Ineos, according to yesterday’s statement.

Morgan Stanley

In 2007, Morgan Stanley agreed to supply oil and sell refined products overseas from the two Ineos refineries. Yesterday’s agreement with PetroChina doesn’t cancel out that arrangement, said Richard Longden, a spokesman for Ineos.

“This is the first step towards, hopefully, the formation of the joint venture with PetroChina,” Longden said in a phone interview. “It would be wrong to speculate on what the outcome” will be.

PetroChina’s Jiemin had said in March that “preliminary work” was under way on a bid for the Grangemouth refinery.

Chinese energy companies spent $38.8 billion on overseas acquisitions in 2010 as demand for raw materials rose in the world’s fastest-growing major economy. PetroChina’s last overseas acquisition was completed in August when the company teamed up with Shell to buy Australian gas producer Arrow Energy Ltd. for $3.2 billion.

“A share in a refinery in two major trading areas will provide a secure supply of oil products and storage capacity for its expanding trading operations,” said Roy Jordan, a London- based research consultant at Facts Global Energy.

Ineos bought Grangemouth from BP Plc in December 2005, along with petrochemical assets. The transaction was part of Ineos’s $9 billion buyout of BP’s Innovene unit.

- Wang Ying in Beijing. With assistance from Tim Farrand in Edinburgh, Andrew Noel, Eduard Gismatullin and Lananh Nguyen in London. Editors: Stephen Cunningham, Ryan Woo.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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