By Bloomberg News March 29 (Bloomberg) — PetroChina Co. will spend at least $60 billion in the next decade on overseas acquisitions to power the world’s fastest-growing major economy, challenging Exxon Mobil Corp. and BP Plc in the race to control oil and gas fields. “Ten years ago, PetroChina was a state-owned oil company, but now we have a goal of becoming an international, integrated energy company,” Jiang Jiemin, chairman of the world’s largest company by market value, said in a March 25 interview, where he announced the investment plan. Beijing-based PetroChina spent almost $7 billion in the last year to buy refineries and reserves in Australia, Canada, Singapore and Central Asia. The expansion pits PetroChina against Irving, Texas-based Exxon, which agreed to pay about $30 billion for U.S. gas producer XTO Energy Inc. in December. “Every five, 10 years or so, you’ll get the occasional $30 billion deal, but this is at least $6 billion every year and that’s significant for any major oil company,” said Neil Beveridge , an analyst at Sanford C. Bernstein Ltd. in Hong Kong. “This puts PetroChina on par or exceeding some international oil majors in spending.” Exxon is counting on gas to provide the bulk of its future growth with the acquisition of XTO Energy as well as new developments from the South Pacific to the Celtic Sea. BP, vying with Royal Dutch Shell Plc as Europe’s biggest oil company, paid at least $8.3 billion to acquire assets over the past 12 months. Spending by Chinese companies on mining and energy acquisitions reached a record $32 billion last year. PetroChina spent between $2 billion and $3 billion annually in the past five years, so the planned investment “is clearly a step up,” Beveridge said. Arrow Purchase Petrochina shares fell for a fifth day in Hong Kong on March 26 following the $3.2 billion purchase of Arrow Energy Ltd. last week. The Brisbane-based company extracts gas locked in coal formations. The decline highlighted concerns about potentially low returns. Investors want to see PetroChina acquire oil and gas resources that are plentiful and cheap to extract, Beveridge said. “Investors want to see growth at the company, but there may be concern growth is put above high returns,” he said. Longer-term investors are betting on PetroChina’s success, driving the shares up 40 percent in the last 12 months. That beat the 38 percent gain in BP and well outperformed the 3.1 percent decline in Exxon. The Arrow deal would help PetroChina develop the country’s coal-bed methane reserves that may be as much as 38 trillion cubic meters, said Jiang, 54. The Chinese company plans to boost its annual output capacity of the fuel to 4 billion cubic meters within five years, Jiang said. That could be 20 percent of China’s coal-bed methane output by 2015, which may reach 20 billion cubic meters by then, according to Sun Maoyuan, chairman of China United Coalbed Methane Co., a unit of China National Coal Group Corp., Nov. 2. Overseas Target PetroChina wants half its oil and gas to come from abroad by 2020, Jiang said in Hong Kong. The company, more than 80 percent owned by the state, currently gets less than a tenth of its production from overseas . The energy explorer and refiner plans to produce 400 million metric tons of oil and gas a year by 2020, Jiang said, without stating which countries are favored for investment. Purchases will be largely funded by the company’s cash flow and earnings, he said. “We aren’t going to operate in every oil-producing country,” said Jiang, who was elected as chairman in May 2007. “It’s not the more you eat, the better. You will suffer from indigestion if you eat too much.” Political Risk Politics is the biggest risk PetroChina faces in its expansion, Jiang said, without elaborating. Domestic rival Cnooc Ltd. dropped an $18.5 billion offer for El Segundo, California-based Unocal Corp. in 2005, the biggest overseas acquisition attempted by a Chinese company at the time. The offer met resistance from U.S. lawmakers on grounds the takeover would threaten national security. Cnooc hadn’t sought a majority stake in any overseas deal until this year when it agreed to buy half of Argentina’s second-largest oil producer Bridas Corp. for $3.1 billion. “Tell those who care about PetroChina, PetroChina will never ever be a threat to anybody,” said Jiang, previously a vice governor of Qinghai province in China’s far west. Russian Gas China wants to triple the use of gas to about 10 percent of energy consumption by 2020 to reduce use of coal. The country plans to import 68 billion cubic meters of the cleaner-burning fuel a year from Russia through two pipelines, Jiang said. That’s about 80 percent of China’s gas production last year. PetroChina’s parent, China Nationals Petroleum Corp., has been in talks with Russia on gas imports for more than a decade and has made “good progress” over the past two years with an initial pricing agreement signed at the end of 2009, Jiang said. The company will focus on its oil and gas business and won’t invest in renewable energy including wind and solar for now, Jiang said. “PetroChina is definitely among the key players globally now in the hunt for resources overseas,” Beveridge said. “It’s increasingly apparent that the international oil majors can no longer call all the shots.” — John Duce and Wang Ying in Hong Kong. Editors: Ryan Woo , Peter Langan . To contact the reporter on this story: Wang Ying in Hong Kong at ywang30@bloomberg.net ; John Duce in Hong Kong at Jduce1@bloomberg.net
