China Petroleum: Comments on the acquisition of equity

PetroChina has announced a plan to acquire 50% of Canada's energy company's natural gas project in 5.4 billion Canadian dollars. Asset acquisitions include the Monterey Project in British Columbia, Prov. and Alberta, Alberta projects and other natural gas assets.　　After the transaction is completed, the two sides will form a joint venture company to jointly develop the project according to the investment ratio of 50%. According to data for the end of 2010, PetroChina has a proven natural gas reserve of about 1 trillion cubic feet, with an equity output of about 255 million cubic feet. The project, located on the border of British Columbia, Prov. and Alberta, covers an area of about 635,000 acres. In terms of 100% equity, the project plans to invest in infrastructure that includes about 700 million cubic feet of natural gas processing capacity, 3,400 kilometres of pipelines and an underground gas storage tank.　　The deal remains to be approved by the Canadian and Chinese governments. The deal, calculated at the end of 2009, will boost PetroChina's proven natural gas reserves by 1.6% and, according to our 2011 production forecasts, will boost China's 2011 output by 3.7%.　　We believe that PetroChina hopes to gain experience and technology in developing tight gas-bearing sandstone through cooperation with foreign companies. The effective development of tight gas-bearing sandstone requires more advanced technical means. Given the size of the deal, we think PetroChina will need to raise money through debt or equity. If financial costs are taken into account, the transaction has little impact on profitability in the short term. At present, we maintain the profit forecast unchanged, while maintaining the Chinese oil H shares of the holding rating and a share of the buy rating.