PetroChina Co., the world’s second biggest publicly traded oil company, is set to sell minority stakes in oil and gas fields as well as gas pipeline projects in western China to raise cash for overseas acquisitions, said a person familiar with the plans.
Some agreements may be announced in the next few months, said the person who asked not to be identified because the information isn’t public. The pipelines offer near double-digit investment returns, the person said without identifying the assets. Talks are taking place with several parties and their investments will be in the billions of yuan, the person said, declining to be more specific or identify who the company is in discussions with.
PetroChina needs more private capital in the company’s domestic oil and gas businesses to relieve its financing burden, chairman Zhou Jiping said on May 23 in Beijing. It had 505 billion yuan ($82 billion) in interesting-bearing debt at the end of 2012, from 350 billion yuan in 2011, according to its annual report published in April.
“PetroChina can use the cash to buy more assets or expand its overseas projects that over time will provide higher returns than what domestic projects can currently provide,” said Simon Powell, an oil and gas analyst at CLSA Ltd. Hong Kong. Of course, what the market will be looking at is what price PetroChina can get for the assets, he said.
The company’s profit fell to 115 billion yuan in 2012 from 133 billion yuan in 2011 and 140 billion yuan in 2010. Capital spending is forecast to rise to 355 billion yuan in 2013 from 352 billion yuan in 2012 and 284 billion yuan in 2011.
PetroChina shares, which have declined 6.5 percent in the past year, fell 0.3 percent to HK$9.24 as of 3:15 p.m. in Hong Kong trading. The benchmark Hang Seng Index gained 20 percent in the last 12 months.
PetroChina’s debt to equity ratio was about 10 percent in 2007, the same level as oil explorer Cnooc Ltd., though much lower than around 60 percent at China Petroleum & Chemical Corp., according to a research note by Neil Beveridge, Hong Kong-based head analyst for oil and gas in the Asia-Pacific region at Sanford C. Bernstein & Co.
The ratio surged to 47 percent by the end of March and is expected to break 50 percent mark by 2015, Beveridge said in the note published on May 2.
“PetroChina will increasingly have to make the choice between growth, dividend or raising additional capital to fund growth,” Beveridge said. “Give the infrastructure investment over the next decade on gas, pursuit of overseas growth and unconventional growth, it seems inevitable PetroChina will have to make some unpleasant choices ahead.”
Sales of stakes in western China, which holds the bulk of the company’s oil reserves, would follow Zhou’s comments on May 23, when he said PetroChina would offer up 600 million tons, or about 4.4 billion barrels of oil-equivalent reserves in its north and northeast oilfields for private investment.
Based on 30 percent to 35 percent oil recovery rate from proven reserves and a $100 a barrel crude price, the assets in the north could be worth as much as $153.3 billion, according to the person. Minority stakes from 20 percent to 40 percent in those fields would value them at between $30 billion to $61 billion, according to Bloomberg calculations.
PetroChina reported proven undeveloped reserves in China of 9.6 billion barrels of oil equivalent in 2012, according to a filing to the U.S. Securities and Exchange Commission in April.
Only about 600 million barrels of those reserves are in the Daqing oilfield in Northeast China, while most of the reserves are in Shaanxi, Sichuan and Xinjiang in western China, according to the filing.
Home & Away
PetroChina and its parent China National Petroleum Corp. have announced plans to spend about $7 billion in the past six months on assets from Mozambique to Australia, according to data compiled by Bloomberg.
That compares with less than $1 billion deals announced during the same period of time a year earlier.
Meantime, the company opened its third West-East gas transmission pipeline to outside investment last year. It spent 32.5 billion yuan on a 52 percent stake, while the National Council for Social Security Fund, Beijing Guolian Energy Industry Investment Fund, and Shanghai-based Baoshan Iron and Steel Co. and its parent each agreed to invest 10 billion yuan for a 16 percent stake.
PetroChina will soon set up a joint pipeline business unit, inviting private and other investment into its first west-east pipeline project and some assets in western China, Zhou said on May 23, without providing details.