Tag Archives: PetroChina

NYSE Delistings Will Nudge Forward China-US Decoupling

DID THEY JUMP, or were they pushed? Whichever, the coordinated announcements by five large Chinese state-owned companies that they are to delist voluntarily from the New York Stock Exchange pre-empt US authorities doing it mandatorily.

The five companies are the oil giants PetroChina and China Petroleum and Chemical (Sinopec), Sinopec’s refining subsidiary, Sinopec Shanghai Petrochemical, Aluminum Corp. of China (Chalco) and China Life Insurance, one of the largest state-owned insurers. All have primary listings in Hong Kong. 

All are also in sectors that Beijing would consider strategic and thus is sensitive to information about them being made available to foreign regulators.

The US Securities and Exchange Commission (SEC) and the China Securities Regulatory Commission have been battling for two decades over incompatible auditing regulations. 

The SEC wants US-listed Chinese mainland-based companies to provide the top US audit watchdog, the Public Company Accounting Oversight Board, with the same access to their financial records that is required of all companies to protect investors from accounting frauds and other financial wrongdoing. 

China refuses to let its companies open their books to foreign regulators for national security reasons.

Last year, there were indications of a compromise being struck, but discussions seemingly have stalled. However, it is possible that voluntary delistings that take the most sensitive Chinese companies out of the equation could be paving the way for an agreement. 

The fundamental problem remains that US rules require listed firms to allow access to information that China bars them from disclosing. 

Under the Holding Foreign Companies Accountable Act passed in 2020, the US Congress has imposed a deadline of 2024 for the NYSE to expel companies that do not comply with US audit requirements. 

Upwards of 200 Chinese firms, Alibaba among them, with an aggregate market capitalisation of more than $1 trillion, are potentially at risk of delisting. The departure of each one would mark another step in the slow walk of economic decoupling between the two countries.

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Tiger Hunting A Boost For China’s Economic Reformers

The corruption investigation into Jiang Jiemin, who has just been removed from his job in charge of the State-Owned Assets Supervision and Administration Commission (Sasac), the agency that controls China’s state-owned enterprises, could prove a big boost for the country’s economic reformers on two fronts.

First, state-owned enterprises have been notable obstacles to the pace of reform as any switch to a more market-oriented economy would diminish the easy access to capital, customers and connections that they have long enjoyed and which provide a large part of their competitive advantage. The corruption probe into the princely China National Petroleum Corp (CNPC), of which Jiang was formerly chairman and from which four senior executives have been removed, shows that President Xi Jinping’s administration considers no state-owned enterprise sacrosanct. If any executive or senior party official in any other SOE needs any convincing of the seriousness of Xi’s intent they should note that Jiang is the first ministerial level official to be taken down in this anti-corruption drive. Xi is making good on his promise to root out the corrupt “tigers” as well as the “flies.”

Second Jiang is close to Zhou Yongkang, who, until his retirement with the change of leadership earlier this year, was the Politburo member in charge of the China’s internal security and intelligence services. These have business tentacles that reach deep into the economy. There is already widespread speculation that Zhou is himself under investigation. Zhou, who rose up through CNPC before coming Party boss in Sichuan (see this illustration of the nexus of political power of “the petroleum faction“), was also close to disgraced politician Bo Xilai. So Xi would be getting a “twofer” here, cracking down on political opponents and opening the way for more economic reform.


Filed under Energy, Politics & Society

China Buys Canadian Oil, Gas And Expertise

State-owned PetroChina has been splashing its cash this week–$1.6 billion to buy out BHP Billiton’s stake in the controversial Australian offshore Browse liquefied natural gas project, and $1.2 billion for a 49.9% stake in a joint venture with Encana to develop the Canadian company’s Duvernay shale oil and gas field in Alberta, with a further $1 billion of investment promised over the next four years.

Chinese energy companies acquiring overseas production assets is scarcely news. They have now spent approaching $30 billion this year alone on oil and gas fields. PetroChina’s two deals look like chump change against, CNOOC’s $18 billion acquisition of Nexen, the largest Chinese overseas acquisition and which has only recently been approved by the Canadian government.

What strikes this Bystander as interesting about the two latest PetroChina deals is the expertise as much as the assets that they bring. China has deepwater, natural gas and shale fields in abundance, but not much experience or expertise in exploiting them. CNOOC got its first deepwater drilling platform into the South China Sea only in May this year. Acquiring the know-how has become a priority. The Duvernay shales, in particular, are geologically similar to some of China’s deep shales. Learning how to tap them is something PetroChina can not only take to the bank, but back home, too.


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Where China Put Its Big Bucks In 2010: Down South America Way

South America dominates the list of the biggest overseas acquisitions by Chinese companies this year. The two biggest to date: Sinopec’s $7 billion purchase of 40% of the Brazil assets of the Spanish energy group, Repsol; and the $5.6 billion CNOOC is spending in two phases for 50% of Bridas Corp., the investment vehicle of the Argentine vertically integrated energy group, Bridas. Bridas Corp.’s primary asset is Pan-American Energy (PAE). The partners are buying out BP’s 60% stake in PAE as BP raises cash to put in a piggy bank for any obligations arising out of the Deepwater Horizon accident, turning what looked in March like an iffy investment by CNOOC into something much more promising by the end of November.

Sinopec has since also picked up the U.S. oil company Occidental’s production and development assets in Argentina for $2.5 billion, the fourth biggest overseas investment by a Chinese company this year. The third biggest was Sinochem’s $3.1 billion purchase of a 40% stake in Statoil’s Peregrino subsalt field off the Brazilian coast. Add in a couple of smaller deals in Venezuela and Chinese firms have secured this year stakes in six projects that will eventually be producing upwards of 570,000 barrels of oil a day.

China’s state oil companies have long had a toe-hold in the region, but this year represents a big step forward, including diversifying China’s energy dependence on Venezuela. These deals have not only secured future oil supplies, they are also piecing together a vertical supply chain that includes refining, trading and storage — and further downstream power generation and distribution. State Grid, the world’s largest power utility and another state-owned behemoth, spent nearly $1 billion to acquire seven power distributors in Brazil as part of a deal it has won to be operate the power distribution system in densely populated southeastern Brazil.

Taken together those seven acquisitions would make a list of the ten largest overseas acquisitions by Chinese companies in 2010. As well as securing energy supplies for China’s own fast growing economy, Chinese companies will be well positioned to profit from the domestic growth of the emerging economies of South America.

In comparison the other big overseas acquisitions of the year seem small beer. PetroChina spent $1.6 billion to acquire Arrow, an Australian coal seam and power distribution company, in a joint bid with Royal Dutch Shell valued at $3.2 billion overall. Chinalco spent $1.3 billion to buy 45% of Rio Tinto’s Simandou iron ore business in Guinea through its Chalco subsidiary. China Huaneng Group, the country’s largest electricity producer, paid $1.2 billion for GMR Infrastructure’s 50% stake in InterGen, a U.S.-based utility that runs power plants in Britain, the Netherlands, Mexico, Australia and the Philippines.

The biggest industrial foreign acquisition was Geely’s $1.8 billion acquisition of Volvo from Ford Motor, the largest piece of business done by a company not state owned. The next largest industrial acquisition was the purchase of Nexteer, a parts-maker bought from GM by Pacific Century Motors, a joint venture between Tempo Group and the investment arm of the Beijing municipal government, a deal valued at less than $500 million.

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Dalian Oil Spill Bigger Than Said, But Big Enough For A Minamata Moment?

The pipeline explosion at a PetroChina oil terminal outside Dalian two weeks ago that sent crude oil gushing  in to the Yellow Sea is reckoned to be China’s worst known oil spill. The worst by quite how much is now the question.

Official figures put the size of the spill at 1,500 tons of oil, which would be 11,000 barrels or half a million gallons. Rick Steiner, an American marine conservation specialist consulting for Greenpeace and who has seen the spill, told the BBC that the spill was lager than that caused by the Exxon Valdez, the tanker that hit a reef off Alaska in 1989 spilling an estimated 260,000 to 750,000 barrels of crude into Prince William Sound. At the time it was the largest oil spill in U.S. waters and is still regarded as one of the worst man-made environmental disasters.

[picapp align=”left” wrap=”true” link=”term=dalian%2c+oil&iid=9419277″ src=”http://view3.picapp.com/pictures.photo/image/9419277/worker-cleans-the-oil-from/worker-cleans-the-oil-from.jpg?size=500&imageId=9419277″ width=”234″ height=”349″ /]Steiner guesstimates that at least 440,000 barrels of oil have spilled into the Yellow Sea from the Dalian explosion creating a slick covering some 1,000 square kilometers (400 square miles). Despite the massive clean-up now underway (left), the environmental damage is likely to persist for years and it is uncertain what lasting effect it will have on nearby fishing grounds.

China’s oil companies and officials were already reviewing their contingency plans in the light of the BP oil spill in the Gulf of Mexico, though reports of the clean-up operation in the Yellow Sea suggest it mainly involves throwing thousands of people at scooping up the oil from boats and off the beaches, some with their bare hands, and spraying chemical dispersants on the water.

Environmentally damaging industrial accidents are commonplace in China. Just earlier this week some 7,000 barrels of toxic chemicals were swept into the Songhua River in Jilin, a source of drinking water for several million people. But such accidents haven’t yet triggered the political backlash that seems inevitable. John Foley of Reuters Breakingviews suggested that was because China “has not yet reached its ‘Minamata moment'”, a reference to the death of nearly 3,000 residents of a Japanese town caused by the dumping in the early 1970s of mercury into Minamata Bay. The case became the poster child for  the unacceptable environmental costs of rapid industrialization, and made controlling pollution a national political priority in Japan.

In 2007, the World Bank estimated that pollution was responsible for the deaths of 460,000 Chinese a year. Authorities have been trying to curb the worst excess of industrial pollution, but it is a Sisyphean task at this stage of China’s economic development. The Party is well aware of the potential challenge to its power that could come from the emergence of single-issue pressure groups such as environmentalists campaigning for water fit to drink and air fit to breathe. Whether the Dalian oil spill turns out to be big enough to create China’s Minamata moment or not, at some point it will arrive.


Filed under Energy, Environment, Politics & Society

PetroChina’s New Venezuela Oil JV

PetroChina has signed a 40-60 joint venture agreement with Venezuela’s state oil company PDVSA to develop the Junin 4 block in the Orinoco belt, the massive offshore field that has proven oil reserves of 8.7 billion barrels. The goal is to extract  2.9 billion barrels of crude over the 25-year term of the JV. In parallel, China Development Bank will make $20 billion of soft loans to Venezuela secured against oil sales from the JV, part of the broader oil-for-loans accord between the two countries struck last year similar to those Beijing has with Russia, Kazakhstan and Brazil.

Venezuela President Hugo Chavez said at the weekend that $16 billion of Chinese investment will help develop not only Junin 4, but also a 500MW thermal plant in Merida state to be built by CAMC Engineering, while the soft loans will be used to build housing, roads and three 300MW power generation plants to alleviate Venezuela’s electrical power shortages.

Venezuela has become Beijing’s fifth largest trading partner in the region with bilateral trade toping $7 billion last year. Venezuela now exports 460,000 barrels of oil a day to China, up from 200,000 barrels in 2006, and the oil-for-loans accord sees that rising to 1 million barrels a day eventually.

Chavez was hoping to tout all this while playing host to President Hu Jintao, but Hu cut short a visit to South America to return to China to visit victims of the Qinghai earthquake.

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PetroChina, Exxon Strike Biggest Australia-China Trade Deal

PetroChina is to buy 2.25 million tons a year of liquefied natural gas from ExxonMobil’s part of the Gorgon gas field off Australia’s northwest coast (Release). The 20-year deal is valued at $41 billion and shows the growing economic ties between China and Australia despite the current political tensions over the Rio Four spying case and Uighur activist Rebiya Kadeer’s forthcoming visit to Australia that prompted Beijing to cancel a senior minister’s trip to Canberra. “China needs us, we need China,” Trade Minister Simon Crean said after the signing in Beijing of he largest-ever trade deal between the two countries.

The deal tops the 1.5 million tons a year of LNG India said it would buy from the still-to-be-developed Gorgon field last week. Chevron and Shell are the other energy majors involved. Gorgon is still awaiting final environmental clearance from Canberra, though these deals suggest that will be a formality, to the chagrin of Australian greens.

China is building more than 10 LNG terminals on the east coast to meet a five-year target to double its use of natural gas by 2010. PetroChina will open its first LNG terminal in Jiangsu in April 2011, and has plans to build another in Dalian and a third  in Tangshan.

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CNPC and Sinopec Bidding Jointly For Petro-Tech Peruana?

Word reaches this Bystander of an unusual possible takeover bid by a Chinese firm, or rather pair of firms.

CNPC, parent of PetroChina, and Sinopec are bidding between $1.5 billion and $2.5 billion for Petro-Tech Peruana, which holds eight licences for drilling in 5 million acres off the Peruvian coast, Reuters reports. Plenty of Chinese companies are buying up natural resources around the world, and, as we have noted before, they have plenty of the wherewithal to do so, but it is uncommon for them to mount joint bids.

That said, Sinopec is also working with China’s third big oil company, CNOOC, on acquiring fields in Angola. This may all point to increasing coordination between CNPC, Sinopec and CNOOC to make sure they are not falling over each other as the world’s biggest oil and gas reserves get increasingly scarce and expensive to acquire, and oil and gas companies turn more to small- and medium sized fields, such as Peru’s

Petro-Tech Peruana made Peru’s first offshore oil discovery earlier this year and has also found natural gas. It may lack the resources to develop two fields that are estimated to hold 1.1 billion barrels of oil and up to 1.2 trillion cubic feet of gas respectively. The company is a subsidiary of Offshore International Group, a privately held American oil and gas company based in Houston and owned by William M. Kalopp, who appears to split his time between Texas and Lima.

CNPC and Sinopec, if they do mount a bid, will likely find themselves in competition with Brazil’s Petrobras and Royal Dutch Shell. But they won’t find themselves without familiar neighbours. Steelmaker Shougang and the Zijin Mining Group already have operations in Peru.

And the bid, again if it happens, will be an interesting test of the current temperature of Sino-American relations as election season in the U.S. heats up. Will Chinese firms bidding for American-owned energy companies, even those owning assets far from the U.S., become a political cause celebre in the way CNOOC’s big for Unocal did in 2005?

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Sluicing Of Tangjiashan Quake Lake Starts

Sluicing of the Tangjiashan quake lake has started. Water levels reached the lip of the spillway cut earlier in the week on Saturday. Xinhua reports that work crews are trying to improve the flow so water can drain faster. The sluicing will stop the level of the lake rising further and hold the waters at a volume that engineers calculate won’t burst the dam created by landslides triggered by the May 12 earthquake.

Two key pieces of infrastructure lie downstream from the lake: the Fujiang river bridge on the Baoji-Chengdu Railway, an important part of the rail network in western China; and PetroChina’s Lanzhou-Chongqing pipeline which supplies 70% of Sichuan and Chongqing’s oil. If the pipe was ruptured, Sichuan has only three days of oil in store.

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Buffett On PetroChina

Warren Buffett, in the latest of his annual letters to Berkshire Hathaway shareholders, published on Friday, noted the one large sale his company made last year, its stake in PetroChina.

We reproduce his commentary here, without any of our own. Its Buffettry at its best, both Warren the investor and Warren the wry wit, topped off with a deft and subtle parting swipe against the Dafur activists who had pressed him to sell because of China’s oil interests in Sudan.

“In 2002 and 2003 Berkshire bought 1.3% of PetroChina for $488 million, a price that valued the entire business at about $37 billion. Charlie [Munger] and I then felt that the company was worth about $100 billion. By 2007, two factors had materially increased its value: the price of oil had climbed significantly, and PetroChina’s management had done a great job in building oil and gas reserves. In the second half of last year, the market value of the company rose to $275 billion, about what we thought it was worth compared to other giant oil companies. So we sold our holdings for $4 billion.

A footnote: We paid the IRS tax of $1.2 billion on our PetroChina gain. This sum paid all costs of the U.S. government – defense, social security, you name it – for about four hours.”

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