PetroChina OKed to Buy Osaka Refinery Stake

Earlier today, PetroChina Company Ltd. (PTR), the largest integrated oil company in China, gained approval from the country’s top economic policy planner — the National Development and Reform Commission (NDRC) — to invest in Nippon Oil Corporation’s Osaka refinery.

NDRC said on its website that the agency had given the green light to the Chinese state-controlled energy giant’s oil trading subsidiary PetroChina International to acquire a stake in the 115,000-barrels-per-day (Bbl/d) refinery in western Japan.

Nippon Oil and PetroChina’s parent China National Petroleum Corporation (CNPC) finalized the deal earlier in the year to convert the Japanese refiner’s wholly owned Osaka refinery into a 51:49 export-oriented joint venture, mainly targeting oil demand in China.

The Osaka deal – which will be PetroChina’s second overseas refinery transaction – would allow the company to take charge of all crude supply and product offtake of the refinery.

As per the agreement, PetroChina, Asia’s largest producer of oil and gas, will be mainly responsible for marketing oil products from the Osaka refinery in the Asia-Pacific region. The refinery, which includes a 27,000 Bbl/d catalytic cracker and a 17,000 Bbl/d catalytic reformer, has the capacity to export 40,000 Bbl/d of oil products, mainly middle distillates gas oil and jet fuel/kerosene.

We believe that the Osaka refinery stake transaction, which follows PetroChina’s May acquisition of Singapore Petroleum Company’s 50% interest in a 285,000 Bbl/d refinery, will help the Chinese oil behemoth to expand its presence in overseas refining from its core business in oil and gas production. Additionally, it will give PetroChina more leverage and flexibility in oil trading as well as a new platform for the implementation of its international strategy.

However, PetroChina’s product portfolio, rising costs and special levies on domestic crude oil sales — as well as downstream-centric assets — remain our chief concerns. As such, our Hold recommendation for the company stays unchanged at this stage.

Our preferred play in the Chinese oil and gas market remains CNOOC Ltd. (CEO) due to the company’s robust upstream asset base and attractive growth profile.
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