Petroc C + CNPC info

PetroChina plans to sell 4 billion shares in China. That amounts to less than a fifth of the 21.1 billion H shares now outstanding. And while China's currency regulator announced a pilot program in August that would allow individuals to buy H shares, the proposal is on hold after other agencies objected.

Once the A shares begin trading, they will replace the H shares as the basis for valuing stock owned by China National Petroleum Corp., PetroChina's state-controlled parent.

China National has 157.9 billion A shares, equivalent to an 88 percent stake before the sale. The stake was valued at $382.5 billion as of yesterday's close.

Build in a 28 percent premium to the H shares, matching Ping An's, and the figure would be $107.1 billion higher. Then add $12.8 billion for the new A shares at the potential premium and $51.1 billion for the H shares at yesterday's closing price.

PetroChina would wind up with $553.5 billion in market value, 5.2 percent higher than Exxon Mobil's $525.9 billion yesterday. A bigger premium would lead to a wider gap.

Five-Day Surge

Investors may be anticipating this kind of run-up, as PetroChina's H shares gained 33 percent in the last five days. The surge followed disclosures that Warren Buffett's Berkshire Hathaway Inc., the company's largest outside investor, had sold most -- if not all -- of its stake.

Even so, the bottom will have to drop out of the company's shares, the mainland's stock markets or both to keep PetroChina from passing Exxon Mobil in market value.

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PetroChina and a sister company, CNPC Hong Kong Ltd., used to go their separate ways in Hong Kong's stock market. Now they are increasingly moving together.

The correlation between the two stocks has risen to 0.592 in the second half from 0.373 in the first, as measured by the coefficient of determination, or R2. The number can be between 0, indicating they are unrelated, and 1, showing they move in lockstep or in opposite directions consistently.

The second-half reading is the highest since PetroChina, more than 120 times bigger than the Hong Kong-based company by market value, went public in April 2000. For the last six months of 2003, the coefficient was essentially zero.

CNPC Hong Kong is an exploration and production company resulting from a so-called backdoor listing, by way of China National's takeover of Paragon Holdings Ltd. in 1993. The 12 percent jump in its shares yesterday was the biggest in 18 months -- and the fifth consecutive advance, matching PetroChina's winning streak. China National owns a 51 percent stake

""PetroChina's share price has rallied strongly over the past month, testing new highs on a daily basis. Apart from solid fundamental reasons, we think that strong market liquidity and (its) prospective A-share listing have pushed the stock up,"" Lehman Brothers analysts said.

The brokerage is currently reviewing its ""overweight""rating on the stock and its target price of 14.50 dollars.

The sudden spurt in trading volume and turnover of PetroChina shares has been attributed to Warren Buffett's disposal of the last of his holdings in the Chinese company.

Buffett's Berkshire Hathaway, previously the largest foreign shareholder in the company, has been diluting its stake in PetroChina since July this year.

Berkshire Hathaway's last disclosed stake, on Oct 10, was 3.1 percent and local investors and analysts believe Buffett's company may have exited the stock already.

Earlier this week, BOCI Research increased its target price for PetroChina to 20 dollars a share from 12.25 as it expects the run-up in the company's stock to continue all the way to its A-share listing later this year.

Buffett: Petrochina Stake Sale "100%" Based On Valuation10-18-07 5:05 PM EDT | E-mail Article | Print ArticleNEW YORK -(Dow Jones)- Berkshire Hathaway Inc. (BRKA) Chief Executive Warren Buffett Thursday said his decision to sell his stake of Petrochina Co. (0857.HK) was based "100%" on price considerations, not on concerns over the company's ties to Sudan.


In a wide-ranging interview with the Fox Business Network, Buffett also said he believed he sold the stake too early, based on the stock's rise in value since the sale.

"I sold a little too soon," he said.

Berkshire Hathaway Inc.'s sales of PetroChina stock, which were first reported in July, had activist investors speculating that Buffett may not want to be involved with a company with ties to the regime accused of using its oil wealth to wage genocide against the people in the western Darfur region, and some groups have suggested that PetroChina has supported the Sudanese government.

Separately, Buffett said that he isn't yet interested in buying into depressed home builders, hit by this year's credit market turmoil.

He said he'd buy only "if they are selling below what I think they're worth," adding, "they're not there yet. I'm waiting until they're underpriced."

Buffett said the housing slump has hit businesses in which Berkshire Hathaway has invested, including insulation, bricks and carpeting, though this poor performance had been offset by strength in insurance.

Buffett also said a New York Times report saying he had been in talks over the possible acquisition in a stake of troubled Bear Stearns Cos. (BSC) was incorrect.

-Mark Long, Dow Jones Newswires; (201) 938-5154; mark.long@dowjones.com


 (END) Dow Jones Newswires
 10-18-071705ET
 Copyright (c) 2007 Dow Jones & Company, Inc.

PetroChina will spend 12.8 billion yuan to boost production capacity at its Changqing and Daqing fields, it said in its listing prospectus. The Beijing-based explorer and refiner will use 1.5 billion yuan to develop part of the Jidong Nanpu field, China's biggest oil discovery in almost 50 years, and 6 billion yuan to expand an ethylene plant at Daqing.

Oil and gas output increased by 5.6 percent in the third quarter at PetroChina, outpacing growth at Royal Dutch Shell Plc and Chevron Corp.

Total spending may jump 24 percent to $24.5 billion this year, PetroChina said in March. That is higher than Exxon Mobil Corp. and Europe's two largest oil companies, Shell and BP Plc.

Billionaire investor Warren Buffett's Berkshire Hathaway Inc. sold its entire stake in PetroChina, Buffett said in an interview on Fox Business Network Oct. 18. Berkshire was PetroChina's biggest shareholder after state-owned China National Petroleum Corp., holding more than 2.3 billion PetroChina shares as of the end of last year.

Berkshire bought its stake for less than HK$1.70 a share in April 2003. Activists have urged Buffett and other investors to divest PetroChina holdings over links to Sudan, whose government the U.S. accuses of supporting genocide. The decision to sell was ``100 percent'' based on share price, Buffett said.

UBS AG's China venture, UBS Securities Co., Citic Securities Co. and China International Capital Corp. are arranging the share sale.  

By Richard Komaiko
www.atimes.com/atimes/China_Business/IK09Cb01.html
PetroChina's November 5 listing on the Shanghai Stock Exchange drew attention from all around the world. This event instigated a storm of punditry hailing the rise of the largest corporation the world has ever seen. However, such pronouncements may be shortsighted. All of these events leave the concerned observer contemplating three questions: What is the true value of PetroChina, what are its prospects, and what does this mean for the business climate of Asia?

Roughly 86% of the firm is owned by the Chinese government. Almost 12% of the firm is traded on the Hong Kong and New York stock exchanges. Monday's A-share initial public offering made .the remaining 2.2% of the firm available to mainland Chinese investors, raising US$8.9 billion for PetroChina.
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In fact, it may be the case that the Shanghai price was driven up precisely because the majority of the company remained unlisted, thus limiting available share supply relative to demand. Therefore, one cannot say with any degree of certainty that the Shanghai price can be used to determine the value of the entire company.The value of the 86% that remains in government hands is a matter of speculation. But whether those shares are valued at the Shanghai price, the Hong Kong price, or anywhere in between, it is clear that PetroChina is a monumentally valuable and important company. On this basis, the firm's conditions and prospects merit further analysis.

It is worth remembering that in mid-October, billionaire investment guru Warren Buffett expressed his opinion that PetroChina was overpriced. At the time, the Hong Kong shares were trading between US$2.18 and US$2.57. This provides some frame of reference for the appropriateness of the Shanghai price. While it is possible that Buffett's analysis of PetroChina was flawed, it seems far more likely that the Shanghai price is flawed. This conclusion is based not only on Buffett's nonpareil track record as a value investor, but also on the fundamentals of PetroChina's business.

PetroChina's technology lags far behind international giants such as ExxonMobil and British Petroleum. Catching up will require a substantial commitment of resources. Last year, PetroChina produced two thirds as much oil as its largest rival, Exxon. PetroChina's revenue was one fourth as great as Exxon's, and profit was less than one half.

In Shanghai, PetroChina is trading at 50 times earnings. In Hong Kong it is trading at 20 times earnings. By comparison, Exxon is trading at 13 times earnings in New York. Obviously the way that investors on the mainland valuate companies is at odds with international practice. Perhaps this can be attributed to greater optimism on the mainland about the prospects of domestic champions.

This brings us to the greatest question about PetroChina: optimism for prospects.The National Development and Reform Commission (NDRC), China's top economic planner and price regulator, maintains fixed prices for oil products such as gasoline and other fuels. It hadn't increased prices of oil products over the past 17 months until the beginning of this month.Only from the beginning of this month did the NDRC allow prices to go up by 10%, with average retail prices of gasoline and diesel oil lifted to 5,980 yuan (US$805) and 5,520 yuan per tonne from 5,480 and 5020 yuan respectively.

Given these prices, most refineries can barely break even when the price of crude on the international market is at $70 per barrel. At the present price of US$97, refineries are hemorrhaging money. Businesses like China Petroleum and Chemical Corporation, China's other oil giant whose principle activity is refining, can only stay afloat with massive government bailouts.

Integrated oil businesses, such as PetroChina, are involved in production as well as refining. The profit from the production business helps to offset the losses from the refining business. In a more liberal climate, PetroChina might maximize profits by reorienting its production business to direct supplies to the international market where the end price is substantially higher. However, the government does not permit this. As a result, the government-imposed price caps have a significant impact on the bottom line.

All of this raises the question: What is the meaning of PetroChina stock? Traditionally, owning stock means that one owns the right to future profit flows. Given that PetroChina cannot freely choose to whom it sells its product or at what price, the firm does not appear to be in control of the principal determinants of profit.

If the government decides to raise the price ceiling, PetroChina will be more profitable. If it decides not to, then inflation will ensure that PetroChina is less profitable. What, then, is the meaning of a share of stock? Does it mean that one owns the right to future government beneficence? Does it mean that one owns a share of the government itself? Does it mean a vote of confidence in the government? If the latter is the true meaning of PetroChina stock, then the government is right to feel tremendously confident.
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Given the concerns of stability and inflation, at present it seems unlikely that the NDRC will raise the price ceiling in any significant way prior to the 2008 Summer Olympic Games. It remains to be determined whether the NDRC will raise the price after the Olympics, and whether the political and social climate will tolerate increases sufficient to keep pace with the international market.