PetroChina Needs More Disciplined M&A Strategy

Two recent natural gas deals in Canada and Australia by PetroChina Co. are getting the thumbs down from Nomura analysts.

Last week, PetroChina announced it would acquire 49.9% of Encana Corp.'s Duvernay shale gas project for $2.2 billion. It also agreed to buy BHP Billiton Ltd.'s stake in the planned Browse gas-export project in Western Australia for $1.63 billion in cash.

Nomura wrote in a note that though the two deals are insignificant in size compared to PetroChina's size, they nonetheless highlight the need for the state-backed oil company to take a "more disciplined approach" in its overseas acquisition strategy.

In the Canada deal, Nomura believes PetroChina overpaid given the long-term collapse in gas prices from $8 per million metric British thermal units in 2009/2010 to $5 mmbtu currently.

It calculates that PetroChina's peer Cnooc Ltd. paid even more for a one-third stake in the Eagle Ford Shale formation in south Texas from Chesapeake Energy Corp. in October 2010. That had a deal value of $10,811 per acre compared to PetroChina's $9,817 per acre in the Encana transaction. In contrast, ExxonMobil Corp. paid about $4,554 per acre for Canadian oil and natural-gas producer Celtic Exploration Ltd. in October.

In Australia, Nomura says liquid-natural-gas projects are "losing their attractiveness" because of overruns in capital expenditure, high local taxes and competition from shale-based LNG projects in North America. In that context, it says PetroChina's acquisition of 10% of BHP's stake in the Browse LNG project for $1.63 billion is "difficult to comprehend."

At that price, Nomura says PetroChina is paying a 20% premium to a deal earlier this year which saw Chevron Corp. transfer its 17.5% stake in Browse to Royal Dutch Shell PLC in exchange for Shell's interest in the Wheatstone export terminal project, plus $450 million in cash. PetroChina could have waited to acquire the asset at a cheaper rate, adds Nomura.