PetroChina to Buy Parent's Exploration Unit, WSJ Says

By Wang Ying and Winnie Zhu
Enlarge Image/Details

Aug. 26 (Bloomberg) -- PetroChina Co. agreed to buy parent China National Petroleum Corp.'s 50 percent stake in an oil and gas exploration company for $11.8 billion, the Wall Street Journal reported, citing a person familiar with the matter.

The acquisition price was set in late April and differences over the payment of a tax on capital gains delayed the deal, the newspaper reported on its Web site. Hong Kong- listed PetroChina, which owns the rest of CNPC Exploration & Development Co., may sell new shares on the Shanghai stock exchange to fund the purchase, it said.

China's biggest oil producer said March 19 it started work on acquiring CNPC Exploration, which holds assets in countries including Indonesia, Venezuela and Oman. PetroChina, the second-largest company after Exxon Mobil Corp., is speeding up development of its overseas business to benefit from record oil prices, Chairman Jiang Jiemin said then.

If the reported price is correct, ``this acquisition seems reasonably cheap to me and could potentially lift 2008 profit by about 5 to 10 percent,'' Gordon Kwan, CLSA Ltd.'s Hong Kong- based head of China energy research, said in e-mailed comments today. He advised investors not to react ``prematurely'' on the report.

PetroChina's board is yet to make a final decision to buy the stake and the company has no plans to sell new shares in Shanghai in the ``short term'' to finance the deal, spokesman Mao Zefeng said by phone in Hong Kong today. PetroChina will report first-half earnings tomorrow.

Falling Shares

PetroChina shares fell 0.4 percent to HK$9.90 at the market's midday break in Hong Kong. They have declined 15 percent in the last year, compared with an 11 percent fall in the benchmark Hang Seng Index. Rivals Cnooc Ltd. gained 15 percent while China Petroleum & Chemical Corp. declined 8 percent in the same period.

The MSCI China Index has slumped 21.5 percent in the last year as Chinese policy makers put priority on sustaining growth rather than cooling inflation in the world's fourth-biggest economy. PetroChina shares in Shanghai have fallen 70 percent since their debut in November last year.

``It is impossible that PetroChina would issue shares under such poor market conditions,'' Qiu Xiafeng, an analyst with China Merchants Securities Co., said by phone in Shanghai.

The completion of the acquisition is subject to regulatory and shareholder approval, PetroChina's Jiang said in March.

The oil producer in June 2005 agreed to pay 20.7 billion yuan ($2.9 billion) for the stake in China National's fields in nine overseas countries to counter stalling domestic output. The company paid $2.74 billion to its parent, gaining control of PetroKazakhstan Inc. in 2006.

``Contribution from overseas production is still quite small now, about 5.1 percent,'' Jiang said in March in Hong Kong. Benchmark crude oil prices in New York have risen 66 percent in the past year and reached a record $147.27 a barrel on July 11.

To contact the reporters on this story: Wang Ying in Beijing at ywang30@bloomberg.net; Winnie Zhu in Shanghai at wzhu4@bloomberg.net;