PetroChina Acquires Australian LNG Project Stake from BHP Billiton

on Dec 12, 2012

On 12 December 2012, the Anglo-Australian miner BHP Billiton (LON:BLT, ASX:BHP, NYSE:BHP, PINK:BHPBF) announced that it has signed an agreement with China’s PetroChina Co Ltd (NYSE:PTR, HKG:0857, SHA:601857) to sell its stake in a major offshore Australian liquefied natural gas (LNG) project. The move, which comes against a backdrop of rising costs of Australian LNG projects, highlights the growing trend of China’s state-owned energy giants to bid for foreign energy resources.

**BHP Selling LNG Project Interest to PetroChina**
As noted in BHP’s press release, the Beijing-backed PetroChina will pay $1.63 billion (£1 billion) for BHP’s 8.33 percent stake in the East Browse Joint Venture and 20 percent stake in the West Browse Joint Venture, located offshore Western Australia.
The deal, which is subject to regulatory approval, is expected to be completed in the first calendar half of 2013. Reuters quotes Andrew Lumsden, partner in corporate advisory at law firm Corrs, Chambers Westgarth, as saying that although the deal will require approval from Australia’s Foreign Investment Review Board, as PetroChina is state-owned, it is unlikely to encounter problems, since the company is to acquire a non-controlling stake.

BHP’s partners in the Browse joint venture include Woodside Petroleum (ASX:WPL), Royal Dutch Shell Plc (LON:RDSA, LON:RDSB, NYSE:RDS.A, NYSE:RDS.B), BP (LON:BP, NYSE:BP), Japan’s Mitsui & Co (TYO:8031, PINK:MITSY) and Mitsubishi Corp (TYO:8058), with the joint venturers having the right to make an offer to match the transaction.
“We believe the sale is a positive given it was a minority stake in a non core asset,” noted Clarke Wilkins, Citi (NYSE:C) resources analyst, as quoted by Reuters. “BHP prefers to have operating stakes in its operations.”

**Australian LNG Industry Woes**
!m[Deal Highlighting China’s Growing Energy Appetite](/uploads/story/1021/thumbs/pic1_inline.png)Reuters reports that BHP Billiton’s decision to sell its stake in the Browse venture follows Chevron’s (NYSE:CVX) exit in August when the US energy giant sold its interest to Shell. Energy producers have been struggling with soaring costs of Australian LNG projects, due to construction challenges, labour shortages and the strength of the Australian dollar.

Royal Dutch Shell was recently reported as considering pushing back the development of its Arrow LNG project in Australia, whereas Chevron last week revised up the cost for its Gorgon LNG project on Barrow Island from AU$43 billion (£28 billion) to AU$52 billion (£34 billion).
**China’s Overseas Energy Push**
It would seem, however, that the rising costs of Australian LNG projects are not discouraging Chinese companies from acquiring stakes. Reuters quotes a KMPG report as showing that Chinese companies invested $45.1 billion (£34.6 billion) into Australia in 116 deals between September 2006 and June 2012, with ninety-two of those transactions made by 45 state-owned enterprises.

Bloomberg quotes Gordon Kwan, head of energy research at Mirae Asset Securities HK Ltd (KRX:037620), as saying that the PetroChina purchase confirmed China’s intensifying interest for imports of natural gas. “Expect more such deals, and they will gain speedy regulatory approvals as they are minority stakes,” added Mr Kwan as quoted by Bloomberg.
The deal is also in line with PetroChina’s target of increasing its output from overseas operations. “For (PetroChina), obviously that particular country probably is not just worrying about the next couple of years. They’ve got a long-term requirement for energy,” notes David Lennox, a mining resources analyst for Fat Prophets, as quoted by Reuters, adding that a lot of Chinese companies are stepping into operational phases of such projects with the purpose of learning the trade. “Possibly they can take those skills back to what they are doing in their own offshore region.”


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