Confirmation that China's No 1 oil producer PetroChina is in talks to buy out Hutchison Whampoa-controlled Husky Energy of Canada has taken many by surprise. The proposed acquisition of Husky's upstream operations could represent the first major overseas acquisition by China's biggest oil company. In an announcement on Tuesday Canadian time, Husky confirmed talks with 'PetroChina and other parties in respect of potential transactions', but offered no assurances a transaction would occur. Quoting unnamed sources, Reuters reported that PetroChina was in talks to buy Husky's oil exploration and production assets and that the price under negotiation was about US$4.4 billion. PetroChina was ambiguous on the subject yesterday, with a company official saying an official statement would be made today. On Tuesday, he said he had no knowledge of the deal. However, the official restated the company's strategy of gradually diversifying into overseas markets in a 'pro-active and prudent manner', to help offset stagnant production volume at home. Yesterday, fellow offshore oil explorer and producer CNOOC denied a report that the company was in talks to buy assets from Husky. In a research report, CLSA head of China research Erwin Sanft said a lack of onshore oil prospects in China and CNOOC's stranglehold on offshore development meant PetroChina had to rely on overseas acquisitions to grow. But he said the rumoured acquisition price did not look particularly attractive as it represented buying Husky's oil and gas reserves at US$5 a barrel of oil equivalent (boe), against US$5-US$6 per boe in oil assets transactions in North America when oil prices were higher. He said PetroChina's current market valuation was about US$2.5 per boe, compared with US$6 or more per boe for international peers in developed markets. A European brokerage analyst who asked not to be identified played down prospects the deal would materialise. 'If we assume the assets to be acquired are in North America as rumoured, a joint bid by PetroChina and CNOOC would make more sense, as the bulk of Husky's oil and gas assets are located in eastern Canada waters and in Alberta,' he said. Without CNOOC's co-operation, he doubted whether PetroChina would have the experience and expertise to manage Husky's offshore assets well. Unlike CNOOC, which has many joint ventures with foreign firms in China, PetroChina does not have extensive experience working with international oil majors.