Petro China is the world’s most valuable listed company

Posted on August 13, 2010

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(Swedish in a separate blog)

The journalist Björn Lindahl at Svenska Dagbladet [a Swedish broadsheet] is, without doubt, Sweden’s leading journalist on oil and natural gas issues. In today’s “Industry” section of the newspaper he has written a very interesting article on Petro China and their development into the world’s highest value listed company. At a value of 333 billion dollars it is now larger than Exxon. Of course, Saudi Aramco would have a greater value if that company was listed on a stock exchange. At the moment Björns article is not available on the internet but I hope that it will be.

Compared with the size of its landmass, China’s oil reserves are quite modest. In total they are about 16 billion barrels. They have chosen to divide up their oil industry into three companies: the Chinese National Petroleum Company, (that is Petro China’s mother company), the Chinese National Offshore Company (that has a monopoly over offshore production in Chinese waters) and Sinopec, that has its main activity in refining and distribution of gasoline and other products.

Let me quote Björn’s description of China’s development as an oil nation:

“The Chinese oil industry is young in comparison to those of America and Russia. The giant oilfield Daqing was found when geologists began to search for oil on the dry plains of northern China in 1959. (Read about my visit to Daqing, , part1, part22). The communist party’s chairman Mao Zedong decided that the nation should become independent of oil imports by developing the field. In their propaganda, Wang Jinxi (or “The Ironman” as he was called) was held up as a symbol of the new China. His legendary drilling team No. 1205 drilled many of the more than 1000 wells in Daqing under very primitive conditions. The field reached its highest production in 1999 at 1.1 million barrels per day. According to Mikael Höök at Uppsala University who recently wrote a report on the Chinese giant fields, together with the fields Shengli and Huabei, Daqing represented 80% of total Chinese production in 1980.” (Link to our article on the Chinese giant fields.)

The decision to form Petro China came in 1999 and by April 2000 the company was listed on the stock exchanges in Hong Kong and Shanghai. It was also possible to buy stocks in New York. They had hoped to raise 10 billion dollars but at that time the low oil price meant that its value became only 2.9 billion.

’The conclusion of Björn Lindahl’s article is interesting:

“But the oil price rose. In 2002 the well-known investor Warren Buffet read Petro China’s annual report and came to the conclusion that the company was undervalued. During two years he bought shares worth 488 million dollars. In 2007 the company found the largest new Chinese oilfield for 50 years in the Bohai Gulf with an estimated 7.5 billion barrels of oil. At the same time an additional 3.7% of the shares were sold in an issue on the Shanghai stock exchange. The demand was so great that the market value of Petro China tripled. A short time later the company was worth more than 1000 billion dollars. Warren Buffet took the chance to sell his shares that were now worth more than four billion dollars.”

It is interesting to note that it is communist China’s national oil company that has helped make Warren Buffet the world’s richest person. It seems appropriate that he now wants to give away half of his fortune.

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