PetroChina, Sinopec to Gain From Russia Oil Agreement

By Winnie Zhu and Wang Ying

Feb. 18 (Bloomberg) -- PetroChina Co. and China Petroleum & Chemical Corp., the nation’s biggest oil producers, will benefit from China’s push to gain resources as the credit crisis prompts countries such as Russia to sell energy assets, said analysts.

Under the oil-for-loans agreement signed yesterday, the two companies will gain access to Russian oil at about $20 a barrel, Wang Aochao, the Shanghai-based research director of UOB-Kay Hian Ltd., said today. Oil in New York is trading below $35 a barrel. Investors should accumulate PetroChina shares, said Gordon Kwan, the head of China research at CLSA Ltd.

China, the world’s second-biggest energy consumer, agreed yesterday to provide Russia with $25 billion of loans in return for 20 years of crude oil supplies. The world’s third-biggest economy is winning deals as Russia faces its first recession in a decade and as the ruble tumbles after the global credit squeeze cuts demand for its exports.

“The slowdown in the Russian economy, declining crude prices and production and the credit crunch has lent the Chinese far better bargaining power,” Kwan said in the report.

State oil producer OAO Rosneft and pipeline operator OAO Transneft signed the accord with China National Petroleum Corp., parent of PetroChina, in Beijing yesterday. Russia will deliver 15 million metric tons of crude oil a year, or about 300,000 barrels a day, to China for the next two decades, and build a branch from a new Siberian pipeline to the Chinese border, Deputy Prime Minister Igor Sechin said yesterday. The crude oil supply is equivalent to about 4 percent of China’s daily fuel consumption.

Delayed Pipeline

Plans to build the pipeline from eastern Siberia had been delayed because the countries couldn’t agree on the price to transport crude oil to the Chinese border. The two countries will start constructing the branch link this year, an official from China National Petroleum, who witnessed the signing of the oil agreement in Beijing, said in a telephone interview yesterday.

“We believe Japan’s recession has given China the negotiating upper hand to take the lead in building the Russian oil pipeline to PetroChina’s Daqing infrastructure with more attractive terms from before,” said Kwan, who set PetroChina’s 12-month target price at HK$7.20.

Japan’s economy, Asia’s biggest, shrank at an annual 12.7 percent pace last quarter, the most severe contraction since 1974. Daqing is China’s biggest and oldest oilfield.

Russia’s economy may contract more than previously anticipated this year, Deputy Economy Minister Andrei Klepach said yesterday. The country is rewriting the budget to include the first deficit since the country’s twin debt default and ruble devaluation in 1998.

Counter Crisis

The oil-for-loans accord will help counter the global financial crisis, Chinese Premier Wen Jiabao said in a Xinhua News Agency report posted on the government’s Web site yesterday. The two nations have “great potential” in expanding cooperation in bilateral trade, investments and hi-tech development, Wen said in the report.

The agreement strengthened the “strategic relationship” between the countries and brings their energy partnership to a new level, China National Petroleum said today.

“This is a new opportunity for China to obtain overseas oil and gas resources, provided by the financial crisis,” said Gong Jinshuang, a senior engineer with China National Petroleum. “It will help the country secure strategic oil supplies and it is also a win-win deal as Russia could take this opportunity to diversify its crude sales.”

PetroChina shares fell 3.2 percent to HK$5.81 at the Hong Kong market’s midday break. Sinopec, as China Petroleum is known, declined 0.5 percent to HK$4.18.

The shares’ drop is in line with weakness in the broad market and also the decline in the price of crude oil, Wang said. The benchmark Hang Seng Index fell 1.6 percent to 12,743.24.

-- Editors Ang Bee Lin, John Viljoen.

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