PetroChina seeks non-state allies for joint ventures

PetroChina, the country's largest oil and gas producer, will seek further co-investments in projects with private enterprises and foreign firms after forming a joint venture with two fund management firms in June.

"We will expand our co-operation with external parties based on the innovative model we used in our gas pipeline joint venture," said president Wang Dongjin.

He said areas open to co-investments included overseas oil and gas projects, hard-to-extract oil reserves in northern China, expensive-to-pump natural gas reserves in Sichuan province and refinery projects in Guangdong, Guangxi and Yunnan provinces.

Weak profitability caused by state controls over energy price and rising debt prompted PetroChina to offload 50 per cent of some of its key gas pipelines to Taikang Asset Management and Beijing Guolian Energy Industry Investment Fund.

Both asset managers agreed to contribute 60 billion yuan (HK$75.5 billion) in cash while PetroChina injected the assets into the joint venture.

PetroChina yesterday posted a 5.6 per cent year-on-year rise in net profit to 65.5 billion yuan for the first half of the year, thanks to a 24.8 billion yuan gain booked by its natural gas and pipeline division. The profit beat analysts' forecasts by 3.6 per cent.

The one-off gain arose from the formation of the venture, which effectively saw PetroChina sell the pipeline assets. Taking out the gain, pre-tax profit would have shown a 21.3 per cent drop.

This was mainly due to a widening of gas import loss, a fall in oil and gas production profit and a decline in fuel marketing profit on intensified competition amid weak demand growth.

These were partly offset by a reduction in oil refining losses after Beijing revamped the state-stipulated fuel pricing mechanism in April to allow domestic prices to move closer to international levels.

The bigger beneficiary of the fuel price reform is rival China Petroleum & Chemical (Sinopec), the world's second-largest oil refiner. It is tipped to post on Sunday a 26.5 per cent year-on-year gain in first-half net profit to 31 billion yuan.

Wang said he expected PetroChina's gas import losses to narrow by 20 billion yuan on an annualised basis after Beijing raised non-residential gas prices by an average 15 per cent from July 10. The benefit would be partly offset by rising gas imports.

The company's gas import losses amounted to 23.4 billion yuan in the first half. Analysts expect the losses to gradually disappear as Beijing has floated a plan to link domestic gas prices to alternative-fuel prices that closely follow international levels by 2015.