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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (5371)	8/17/2005 9:11:45 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

PKZ bid, official --US$3.2b bid for Kazakh oil Tim LeeMaster and Karen Teo August 17, 2005 A joint venture between PetroChina and China National Petroleum Corp, its unlisted parent, offered to pay about US$3.2 billion (HK$24.9 billion) for Central Asian oil producer PetroKazakhstan, a source familiar with the situation said. That puts China's largest integrated oil firm in direct competition with India's Oil & Natural Gas Corp, that country's biggest energy firm. In conjunction with London-based steel billionaire Lakshmi Mittal, it offered US$3.5 billion for PetroKazakh, according to a source familiar with the situation. The company has a market value of US$3.3 billion, based on its closing share price Monday on the Toronto Stock Exchange. "One of our key strategies is to focus on oil and gas assets that are closer to home because of China's oil needs,'' a source at PetroChina said. "We plan to transport the oil through the China-Kakakhstan pipeline to our refinery in Dushanzi in Xinjiang in northwest China.'' The potential transaction has electrified Hong Kong investment bankers, who hope to cash in on what could be the year's largest financing should the Chinese oil giants win the bidding and decide to take on debt to pay for the acquisition. Oil industry analysts were less enthusiastic, saying the deal would lo little to bolster either the companies' profits or their oil and gas reserves. "Given PetroChina's size, PetroKazakhstan's assets will add only about 2-3 percent to PetroChina's reserves, and not significantly to earnings,'' DBS Vickers analyst Gideon Lo said. "However, politically, Kazakhstan is a more friendly battlefield for PetroChina, compared to the US.'' PetroChina's smaller rival, China National Offshore Oil Corp, recently withdrew its bid for US oil firm Unocal after running into a political firestorm centered on the company's state ownership. PetroKazahk is the country's third-largest oil producer accounting for 12 percent of domestic output. The company pumped just over 150,000 barrels of oil a day last year. Citigroup is advising Newco, a 50-50 joint venture between the Hong Kong-listed oil company and parent China National Petroleum Corp. The joint venture was set up last year to pool the two firms' international oil operations and is expected to be fully operational by year's end. PetroChina has been largely frustrated in its efforts to acquire foreign oil and natural gas reserves while CNPC has assembled a world-spanning portfolio of production assets. Goldman Sachs is working with PetroKazahk. Both banks declined to comment. There's no guarantee investment bankers' dreams of fat fees will ever materialize, since PetroChina and its parent certainly aren't starved for cash with oil prices near all-time highs. Crude oil prices have more than doubled since the end of 2003 hitting a record US$67.10 a barrel Friday in New York trading. Parent CNPC ranked No52 in Fortune magazine's list of the world's largest companies with annual turnover of US$56.4 billion. Even if they could pay cash for PetroKazahk from their own resources, the two firms might still opt to borrow at least some of the money. Using debt financing could help PetroChina build a debt profile in the global market, which is important for a company that sees itself as a peer of such international giants as ExxonMobil and Royal Dutch/Shell. So far, the company has only borrowed money on the domestic market, where rates are lower, and currently has two bonds totalling 2.85 billion yuan outstanding. Acquiring PetroKazakh through the joint venture not only fits with the strategy of pooling the parent's and its offspring's expansion efforts but also could prove less costly than if CNPC went ahead on its own. That's because the PetroChina, whose shares are listed both in Hong Kong and New York, is considered a relatively safer risk by bankers and investors. The Chinese firms appear to be banking on their existing investments in Kazakhstan, particularly the new pipeline, to turn the tide in their favor. tim.leemaster@singtaonewscorp.com karen.teo@singtaonewscorp.com thestandard.com.hk