PetroChina mulls Canadian asset swap to ride out oil plunge

[HONGKONG] - PetroChina said it's in talks with international oil companies about swapping assets in North America to help it ride out the slump in crude prices.

China's biggest oil and gas company said the negotiations are mostly focused on the oil sands in Canada, which is the world's fifth-largest producer albeit at a relatively high cost.

The rationale is that swapping assets would be more efficient than outright sales, which, while oil prices are low, would "cause losses for international oil companies," vice chairman Wang Dongjin said in Hong Kong yesterday at the company's earnings briefing. He didn't name the companies that PetroChina is talking to.

"We may try asset swaps for our North America assets, mostly in Canada, as the low crude environment makes it hard to find willing buyers," said Mr Wang. "If we can strengthen co- operation with international oil companies and have our assets swapped, that will help us restructure our assets and complement each other."

PetroChina completed its purchase of Canada's Dover oil- sands project in 2014 for US$1.1 billion from Athabasca Oil Corp. In 2012, it paid Encana Corp. US$1.2 billion for a 49.9 percent stake in Alberta's Duvernay formation.

"There is a tax efficiency in an asset swap rather than just a sale, there is no question about that," said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein. "But an asset swap doesn't help you protect the value of your properties."

PetroChina reported a smaller drop in full-year profit than its peers as increased output and stricter cost control helped it counter the plunge in crude prices.

Its stock fell 1.1 per cent in Hong Kong to trade at HK$8.26 as of 10:33 a.m. The city's benchmark Hang Seng Index dropped 0.2 per cent.

Net income fell 17 per cent to 107.2 billion yuan in 2014 from 129.6 billion yuan a year earlier, according to a statement on Thursday. Excluding a one-time gain from pipeline asset sales last year, profit fell 4.5 per cent.

State-owned peer China Petroleum & Chemical posted a 30 per cent slide in 2014 profit on Sunday, while Chevron, the second-largest US energy producer, reported a 10 per cent drop and Royal Dutch Shell posted a 9.1 per cent decline. Brent, a benchmark for half of the world's crude trading, dropped 48 percent last year, forcing explorers worldwide to pare investment and fire workers.

"PetroChina did an excellent job in controlling production cost, especially when compared with its peers," said Laban Yu, a Hong Kong-based analyst at Jefferies Group, who has a buy recommendation for the stock.

Cnooc, the country's biggest offshore oil and gas explorer, is expected to report a 7 per cent drop in 2014 profit, according to the mean of 24 analyst estimates compiled by Bloomberg. Cnooc announces earnings later today.

Beijing-based PetroChina will cut capital expenditure to 266 billion yuan in 2015 from 292 billion yuan last year, the third consecutive year of reductions. It will invest 75 per cent of that in exploration to maintain growth, Mr Wang said.

"We will make sure our advantage in the upstream business isn't compromised even as we cut back spending," he said.

Operating profit from oil and gas exploration and production dropped 1.5 per cent to 189.7 billion yuan. The explorer raised oil and gas production by 3.6 per cent to 1.45 billion barrels last year, according to the statement. The realised crude oil price dropped 13 per cent to 3,939 yuan a ton.

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