PetroChina to spend $60 billion in overseas acquisitions by 2020

PetroChina, the world's second-most valuable oil and gas company after Exxon Mobil Corp, is planning to spend a massive $60 billion on overseas energy acquisitions over the next decade as Chinese oil majors move to expand their reach around the globe to secure the long-term energy needs of the world's fastest growing economy.

Jiang Jiemin, chairman of Asia's most profitable company said in an interview with a local daily that a decade ago, PetroChina was a state-owned oil company, but now its goal is to become an globally integrated energy company.

This massive overseas acquisition proposal follows its parent China National Petroleum Corporation (CNPC), having received a low-interest $30 billion state loan late last year to fund overseas acquisitions, when the global economic downturn had pushed down asset valuations.(See: China arms CNPC with $30-billion loan for overseas acquisitions)

In the early 1990s, China was an exporter of oil, but with its economy picking up and the country's rapid expansion, the trend has reversed. Its ageing oil fields and decades-old technology are now unable to meet its fast-growing energy needs.

Armed with more than $2 trillion in foreign exchange reserves, China has supported its state-owned oil companies to make landmark overseas acquisitions to secure oil supplies, especially last year when the valuation of energy assets had fallen considerably due to the global economic downturn.

During PetroChina's annual general meeting in April last year, Jiemin had said that the global economic downturn was an opportunity to hunt for overseas acquisitions and ventures.

''Depressed oil prices and the global credit crises have left smaller oil companies scrambling for cash, creating an opening for Chinese natural-resource companies, which still have access to financing from the country's robust banking sector, Jiemin said.

Beijing-based PetroChina spent nearly $7 billion last year in acquiring refineries and oil assets in Australia, Canada, Singapore and Central Asia. (See: PetroChina buys 60 per cent stake in Canada's oilsands for $1.7 billion and PetroChina to buy 45.5 per cent stake in SPC for $1 billion)

Taking advantage of the low valuations of energy assets last year, Chinese entities had totally spent a record $32 billion in overseas acquisitions in the energy and mining sector, and signed $46 billion worth of loan-for-oil deals with Russia, Brazil, Ecuador, Kazakhstan and Venezuela. (See table)

PetroChina, made a net profit of $15.14 billion last year, and will investment around $60 billion around the world by 2020. Since the past five years, the company had spent on an average of $2-$3 billion annually in planned investments.

The oil major plans to spend $6 billion annually or twice of what it had earlier planned.

Its massive $60 billion foreign spending plans will also pit it against western oil majors like the Exxon and British Petroleum, which have made substantial acquisitions in the last six months snapping up assets in North and South America and the Caucasus region. (See: ExxonMobil to acquire XTO Energy for $41 billion and BP to buy Devon Energy's LatAm, Azerbaijan oil and gas assets for $ 7 billion)

PetroChina and Royal Dutch Shell teamed up to acquire Arrow Energy, Australia's coal seam gas producer for $3.2 billion, this month. (See: Shell, Petro China seal Arrow Energy acquisition with $3.2 billion revised offer)

Disadvantage India
Faced with the prospect of losing out investment opportunities to Chinese oil majors, India is now trying to set up a sovereign wealth fund to help its oil companies ONGC and OVL to compete with their Chinese rivals in making much needed energy acquisitions overseas. (See: India mulls setting up sovereign wealth fund)

India currently produces 680,000 barrels of oil per day and spends close to $124 billion (Rs600,000 crore) to import 75 per cent of its crude oil requirement.

According to the Paris-based International Energy Agency (IEA), India's energy consumption is likely to more than double by 2030 to 833 million tons of oil equivalents, which would make the country's import bill soar to more than $248 billion if the price of crude was $66 a barrel.

China produces 3.8 million barrels of oil a day and according to the IEA, its consumption reached 8.5 million barrels a day last year, up from about 4.8 million in 2000.

IEA said that China's oil demand jumped by a record 28 per cent in January 2010, despite demand in the Western countries decreasing because of high oil prices, global recession, and steps towards energy conservation drive.