TPT January 2008

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January 2008 78 ›
Oil & Gas News
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
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
Photo courtesy of Radyne
PetroChina’s stated
purpose . . . was
to raise more than
$9 billion, with
some $5 billion of
that earmarked
for five projects
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