Petrochina to Buy 50% Stake in CNPC for $11.8 Billion

PetroChina Co. (PTR), one of mainland China’s biggest oil producer and Asia’s most profitable co., according to WSJ – has agreed to buy the 50% stake international joint venture held by its parent co., state-owned China National Petroleum Corporation (CNPC), in a deal valued at $11.8 billion.

PetroChina took its 50% stake in the venture in June ’05, when it paid 20.74 billion yuan ($3.03 billion) to CNPC Exploration & Development Co. The contractual agreement, at the time – was aimed at boosting the growth profile of PetroChina, which had few overseas assets and whose oil production at home had started stagnating due to aging oilfields.

The Hong Kong & Nyse-listed co., notes the Journal – has been widely expected to buy the rest of the of the joint venture sometime this year, but rising oil prices pushed up the value of the remaining half. Nevertheless, the management at CNPC and PetroChina almost systematically and completely overlap and frequent asset transfers between the two entities, which often take place at subsidized rates, have made CNPC completely reliant on PetroChina for its financial health. That’s why this transaction was expected to happen since it was more a matter of technicality, than anything else.

Following the deal’s closure, PetroChina will wholly own CNPC, including its assets in more than 10 countries such as Azerbaijan, Turkmenistan, Venezuela, Algeria, Peru, Oman, Canada, Chad, Indonesia and Ecuador. CNPC has 30 international exploration and production projects.

But the deal doesn’t include CNPC’s oil and natural gas assets in Sudan, due to political issues and sensitivities surrounding operations in the African state. The Sudanese assets accounted for more than half of CNPC overseas portfolio’s 12.88 million tonnes of output during 2003. Deutsche Bank (DB) has valued all of CNPC’s overseas reserves in countries including Sudan, Kazakhstan and Venezuela, at more than $6 billion.

PetroChina favors issuing new shares on the Shanghai Stock Exchange to finance the purchase, however, co. spokesman said there were not imminent plans to issue new Class A shares to raise funds. Some of PetroChina’s largest shareholders, have included, billionaire Warren Buffett, Fidelity Investments, JP Morgan Chase (JPM), Franklin Resources etc.

PTR shares declined almost 1% in Hong Kong, 1.5% in Shanghai and 2.23% in Nyse.

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