Bulking Up in Oil and Gas

10/06/2009 12:00 pm EST

Focus: STOCKS

Jim Trippon

Editor-in-Chief, China Stock Digest

Jim Trippon, editor-in-chief of China Stock Digest, says the Chinese oil and gas giant is raising cash and spending it freely in a big push to expand around the globe.

PetroChina (NYSE: PTR) [has rallied recently] despite the disappointment over Beijing’s gas price increases. As a company primarily involved in discovery, extraction, and refining of oil and gas, PetroChina has a smaller stake in end-user prices than China Petroleum & Chemical (Sinopec) (NYSE: SNP).

All signs from PetroChina point to massive expansion, from recent acquisitions to financing plans, to future projections. In acquiring finance for future acquisitions, PetroChina has issued $4.39 billion worth of 330-day bills on the interbank market.

In another financing move, PetroChina (a subsidiary of the government’s China National Petroleum Corp.) said its parent had purchased an additional 242.52 million shares, or 0.13% of the company’s total outstanding shares, as of September 21st. CNPC now holds around 158.17 billion shares of PetroChina in total, accounting for 86.42% of the total outstanding capital.

In addition, CNPC, the parent of PetroChina, received a low-interest $30-billion loan to finance overseas acquisitions—the latest sign that Beijing was deploying its vast cash reserves to ensure its economy has the resources it needs to keep growing.

Earlier in September, PetroChina put some of its capital to work, acquiring $1.9 billion worth of property for development in Canada’s vast oil sands reserve. This move has raised political alarm bells in Washington. With reserves second only to Saudi Arabia, the oil sands have been highlighted as an important component of US energy security.

The US State Department explicitly cited the benefits of a secure, non-Middle East source of oil when it issued a permit last month to Enbridge’s (NYSE: ENB) $3.3-billion Alberta Clipper project, which will carry oil sands bitumen to US refineries. There may be a bidding war over future oil sands developments between China and the US.

PetroChina and its parent company are also bidding on Repsol’s Argentine unit, YPF (NYSE: YPF). Other ventures on the table are holdings in Singapore and joint refinery ventures with Shell and Qatar. Ecuador has received a $1-billion advance from PetroChina.

The company says it will double the supply of pipelined natural gas to Beijing to 12 billion cubic meters by 2015 from an estimated six billion cubic meters this year. Gas consumption in the Chinese capital has been growing quickly in recent years, partly due to Beijing’s efforts to increase clean energy usage to improve air quality in the run up to last year’s summer Olympics.

PetroChina produces more than 80% of China’s natural gas and runs most of the country’s gas pipeline networks. The company is reported to be trying to boost gas production from its aging Daqing oil field with an eye to tripling gas production there.

PTR was added to our buy list at a “buy up to” price of $115.00 a share. (It closed above $113 Monday—Editor.)

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