PetroChina quits deal for Canada gas firm stake
PetroChina has walked away from a C$5.4 billion (HK$43 billion) stake acquisition in a natural gas project in Canada after it failed to reach agreement with Canadian energy firm Encana on the price and the details of the deal.
China's largest oil and gas producer withdrew from negotiations due to 'differences in valuation judgment and transaction process', said its Beijing-based spokesman. 'But this has not affected PetroChina's overseas development plan and business strategy in North America.'
In mid-February, PetroChina said it had agreed to pay C$5.4 billion for a 50 per cent stake in Encana's Cutbank Ridge unconventional gas development project in western Canada. It was subject to due diligence by PetroChina and government approval.
At the time, PetroChina said it expected the acquisition to provide a platform for entering the North American market.
Had the deal been completed, it would have been the firm's largest asset acquisition and would have provided a toehold in North America, a large energy consumption and production region where advanced drilling technology is deployed.
Analysts said the deal was expensive even though it would have helped China gain know-how on exploiting hard-to-reach unconventional gas and use it to develop domestic resources. They said the C$5.4 billion price tag would imply a C$5.40 per thousand cubic feet of proven reserves, compared with the US futures gas price of US$4.30.
However, PetroChina said it was a reasonable price on which it could meet its internal return requirement.
Conventional natural gas - largely methane - either co-exists with crude oil or is stored in readily accessible underground reservoirs. Unconventional natural gas is trapped between rock layers or in coal seams, and extracting it has only become economical in recent years by using new technology mainly developed in the US.
PetroChina's share price edged down 0.4 per cent to HK$11.04 yesterday, compared with the Hang Seng Index's flat performance. But the oil giant's shares gained 4 per cent in the past week, outperforming a 2.2 per cent loss in the index.
'Investors should be relieved to see PetroChina pulling out of this expensive unconventional gas deal,' said Gordon Kwan, head of energy research at Mirae Asset Securities. Kwan said Beijing's reluctance to raise domestic gas prices meant it was hard for PetroChina to justify importing expensive foreign gas and investing in expensive-to-develop unconventional gas projects.