(PTR) PetroChina Buys into Canadian Asset

Chinese energy giant PetroChina Co. Ltd. (PTR) inked an asset acquisition deal with Royal Dutch Shell plc (RDSA). Per the agreement, PetroChina purchased 20% stake in a Canadian shale gas project – Groundbirch – from Shell. However, neither of the companies disclosed the financial terms of the deal.

Located in northeastern British Columbia, Shell owns 100% interest in the Groundbirch project that holds a production capacity of 1 billion cubic feet equivalents (bcfe) per day and has an estimated producing life of 40 years.

Even after the deal, Shell will continue to act as the operator of the venture. While PetroChina will evaluate the export potential of the fuel in the form of liquefied natural gas to Asia, Groundbirch will continue to meet customer demands in North America.

This acquisition will enhance PetroChina’s footing on the Canadian ground and pave way for future investment opportunities. After the collapse of a natural gas agreement with Encana Corp. (ECA) last year, PetroChina remains highly optimistic about this deal. The company also plans to import updated technologies from overseas to apply for better drilling in domestic oil fields.

Of late, many Chinese firms are making their presence felt in the North American oil and gas industry. In October 2011, state-controlled China Petroleum and Chemical Corporation, or Sinopec (SNP) agreed to acquire Calgary, Alberta based Daylight Energy Ltd. for about C$2.2 billion (US$2.1 billion). In another transaction, CNOOC Ltd. (CEO) closed the acquisition of Canadian oil sands operator OPTI Canada Inc. for $2.1 billion in November last year.

China’s impressive economic growth has significantly increased its demand for oil, natural gas and chemicals. This growth momentum presents attractive opportunities for industry players to meet the country’s fast-growing energy needs. Being a major integrated oil company in China, PetroChina is well positioned to capitalize on these favorable trends.

However, we are concerned about the company’s oil production growth prospects, considering its heavy exposure to significantly mature producing areas. Other near-term headwinds include high-priced gas imports in the face of low domestic gas sale prices, regulatory uncertainty and an ambitious investment program.

Consequently, we see PetroChina ADRs performing in line with the broader market and maintain our long-term Neutral recommendation. PetroChina currently retains a Zacks #3 Rank (short-term Hold rating).

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CHINA PETRO&CHM (SNP): Free Stock Analysis Report

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