TPT January 2008

Oil & Gas News

same day. But the momentum was unmistakable, for both China and its largest oil company. The Chinese stock market was valued at less than $1.1 trillion before tripling last year and giving China four out of ten of the world’s biggest companies. Data compiled by Bloomberg show PetroChina had 20.5 billion barrels of oil and gas reserves in 2006, compared with 22.1 billion for Texas-based Exxon. Moreover, PetroChina has been adding new reserves at an average annual rate of 5 per cent for the past three years, a faster pace than that set by the world’s largest oil companies by sales: Exxon, Royal Dutch Shell, and BP Plc. PetroChina’s stated purpose in making its initial public offering of shares was to raise more than $9 billion, with some $5 billion of that earmarked for five projects. These include oil field construction, technology upgrades, and expansion of ethylene capacity. Surplus proceeds from its offer would be used to supplement working capital, the company said. The grinches check in ■ Larry Grace, an oil analyst at Kim Eng Securities Co, in Hong Kong, cautioned that PetroChina’s spectacular opening-day performance in Shanghai might have more to do with Chinese investors seeking better returns than with the outlook for the company’s exploration and production operations, or its refining business. He told Bloomberg ’s Ying Lou, “Production is static with limited upside for the next three to four years. As for the downstream [refining], the price controls and over-all regulatory trend limit the company’s earnings.” ■ Another sobering assessment had been delivered in advance by the legendary billionaire investor Warren Buffett, whose brokerage Berkshire Hathaway Inc sold its stake in PetroChina last year, realizing an eightfold gain that contributed to a 64 per cent increase in third-quarter profit for the company. Berkshire (Omaha, Nebraska) had 2.34 billion shares as of the end of 2006, the largest holding after state-owned China National Petroleum Corp. On October 24, in the northern Chinese city of Dalian, Mr Buffett observed that in his view Chinese share prices had risen too fast. “It’s easy to be carried away in the stock market when things are going very well,” he said. “We at Berkshire never buy stocks when we see prices soaring.” ■ In fact, PetroChina retreated from the giddy heights rather quickly. On November 6, shares of China’s biggest oil producer fell in Hong Kong trading, poised for a record two-day decline after Bear Stearns & Co recommended selling. The drop was as much as 6.7 per cent, on top of the 8.2 per cent slump late in the first day of trading. A Bear Stearns analyst wrote, “We see little fundamental reason why PetroChina should outperform other Chinese oil companies or even the China market.” China and India are seen dominating growth in oil markets A leading energy expert said on October 31 that the rapidly growing appetite for fossil fuels in China and India will likely help keep oil prices high for the foreseeable future, threatening a global economic

Selling shares to mainland Chinese investors for the first time, PetroChina opens big in Shanghai

PetroChina Co became the world’s first $1 trillion company on November 5, having almost tripled in value in its first day of trading on the Shanghai Stock Exchange. The share surge by the state- owned oil producer made for a day of superlatives. PetroChina’s market value suddenly was greater than that of Exxon Mobil Corp and General Electric Co combined. It also topped the worth of the entire Russian stock market and put China out in front of Russia in their competition to create the world’s largest company. PetroChina trades at 55 times earnings, four times Exxon’s ratio of 13 times earnings and close to the 58 times for the world-class success story Google Inc. Its Shanghai listing pushed China’s stock market beyond that of the UK to become third-largest in the world. Ying Lou, in Shanghai for Bloomberg News , noted the anomaly of a rally that made PetroChina shares four times more expensive than Exxon’s, even though China’s largest oil and gas producer generates only a quarter of the revenue of the US oil giant (“PetroChina’s Value Tops $1 Trillion, surpassing Exxon,” November 5). Mr Ying reported that PetroChina’s chairman Jiang Jiemin struck the 9:30 am opening gong at the Shanghai Stock Exchange, then toasted the start of trading with a glass of red wine. “I feel very excited today and also feel a very strong sense of responsibility,”

Mr Jiang said. “This is PetroChina [giving back] to our investors and society.” Talk of a stock-market bubble could be heard wherever analysts gathered, and in fact PetroChina shares fell 8.2 per cent in Hong Kong later on the

PetroChina’s stated purpose . . . was to raise more than $9 billion, with some $5 billion of

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that earmarked for five projects

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Photo courtesy of Radyne

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J anuary 2008

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