CNPC's major gas find may be more hot air
Failure to bring into production previously announced major oil and gas discoveries has dampened excitement over PetroChina's latest news
While a major gas discovery announced by PetroChina last week triggered a spike in its share price, analysts said any such news should be taken with a pinch of salt given the firm's tarnished track record in bringing previously announced major discoveries to production.
The Longwangmiao block of PetroChina's Anyue field, straddling Sichuan province and Chongqing, was estimated to contain 440 billion cubic metres (bcm) of natural gas, of which 308 bcm is believed to be technically recoverable, according to a statement from its parent China National Petroleum Corp on February 10.
CNPC called it the biggest self-contained gas reserve in China. Annual output of six bcm has been planned but it gave no production time frame.
CLSA head of Asia oil and gas research Simon Powell said the discovery could add 8 to 10 per cent to PetroChina's 1,914 bcm of gas reserves at the end of 2012, assuming 50 to 60 per cent of the recoverable reserve is economically viable. PetroChina's shares rose 1.6 per cent on the day, outpacing the Hang Seng Index which fell 0.3 per cent.
Neil Beveridge, senior analyst at Sanford C. Bernstein, said while the discovery could add 10 per cent to PetroChina's gas reserve, the firm's track record on major reserve discoveries may have dampened excitement over the announcement.
"What we have seen were a couple of disappointments from PetroChina's projects which never turned out to be quite so big, with extractible reserves considerably smaller than [management] indicated," Beveridge said.
He was referring to two discoveries announced by former chairman Jiang Jiemin, who together with a handful of other senior officials or former officials of PetroChina and its parent, have been detained since last August for investigation into alleged corruption.
In March 2007, Jiang told reporters that the oil and gas giant would announce by mid-year that it had made the nation's largest oil discovery "in a few decades", and it would unveil by the end of the year details of China's largest gas discovery since the country's founding in 1949.
On May 3, 2007, PetroChina said in a statement to Hong Kong's stock exchange that it discovered the Nanpu oilfield in Bohai Bay's Jidong region with reserves of 1.02 billion tonnes.
Analysts said at the time it amounted to 15 per cent of the firm's oil and gas proven reserves. Its share price jumped 14 per cent the following day.
PetroChina's statement to Hong Kong's exchange said it was applying for the reserves to be assessed by the authorities and it would disclose material developments on a timely basis. However, it never announced the reserve assessment results, or the actual output.
The other major discovery proclaimed by Jiang in 2007 was the Longgang gas field in Sichuan province. In March 2008, he told analysts it was expected to have at least 400 bcm of "proved reserves", adding details would be made public by October 2007. No disclosures have been made since.
One analyst said for reserves to be booked under US securities regulatory rules as "proved", they have to be demonstrated to have a high probability of existence, which means positive results from the drilling of many more wells.
Kenny Tang Sing-hing, general manager of AMTD Financial Planning, said given the uncertainty surrounding "proved reserves," he would shy away from trading the stocks of mainland companies if they announce the discovery of a major oil or gas find.