PetroChina (NYSE: PTR ) is China's largest oil and gas producer and distributor. Through acquisitions, development contracts, and loans, the company has positioned itself as a major player in Latin America, too. This presents PetroChina with great opportunities for growth in the upstream, midstream, and downstream sectors in the coming years.
A foothold in Peru
Last November, PetroChina and Brazilian energy giant Petrobras (NYSE: PBR ) reached a deal in which PetroChina would acquire Petrobras' Peruvian subsidiary in its entirety for $2.6 billion. This passes on to PetroChina full ownership of two blocks and a 46.16% stake in a third block in three Peruvian oil and gas fields. According to Petrobras, the sale includes Lot X, a mature oil field in operation since 1912; Lot 57, a gas field that has not yet commenced operations; and Lot 58, a field whose gas content was recently confirmed .
It is the natural gas potential of these fields, more so than the oil, that adds value for PetroChina. Natural gas production in the Andean country has greatly increased since 2004, when its Camisea field began operations, and domestic consumption increased twelve-fold from 2002 to 2011. Growing production and consumption of natural gas should yield ample upstream, midstream, and downstream ventures for PetroChina.
PetroChina controls an OPEC member's oil?
If someone said that PetroChina runs the Ecuadorian oil sector, the assessment would not be too far off.
In 2007, Ecuadorian president Rafael Correa disregarded much of the country's foreign debt and allowed Ecuador to default in 2008. Of course, this had a disastrous impact on the country's credit. PetroChina stepped in to save the day and extended Ecuador a $1 billion loan. In exchange, the Ecuadorian government earmarked 96,000 bbl/d for Chinese entities. PetroChina agreed not to step on the toes of PetroEcuador, Ecuador's national oil company, by selling the oil in neighboring countries; however, in later deals, PetroChina gained the right to resell the oil wherever it chooses .
Now, with much of Ecuador's oil locked up in contracts with PetroChina or other Chinese firms, as little as 10% of Ecuador's oil is sold on the competitive market. As of mid-2013, PetroChina handled 60% of Ecuador's oil exports .
Further, there are midstream and downstream opportunities for PetroChina to potentially be involved in. Ecuador's pipeline infrastructure is old and ill-suited for the demands of 2014 and beyond. The country has only three oil refineries and is looking to construct a new one. PetroChina can leverage its influence in Ecuador to help construct or manage much needed pipelines and refineries. In fact, it has taken a big step in this direction already by investing $10 billion in the Pacifico refinery to gain a 30% stake in the plant. The refinery is slated to produce 200,000-300,000 bbl/d of gasoline, petrochemicals, and distillates.
It doesn't stop at Peru and Ecuador
PetroChina is also making important moves in other Latin American countries. As part of an international consortium, PetroChina won the rights to Libra, a Brazilian deepwater oilfield. Libra is estimated to contain between 8 billion and 12 billion barrels of oil reserves. The company has been angling for lucrative oil production contracts in Venezuela, as well. As these projects come to fruition, doors may be opened for PetroChina to work with other Latin American countries, such as Colombia and Argentina.
What's the Foolish conclusion?
PetroChina has positioned itself well in Latin America. It is expanding very quickly, particularly in Ecuador, where it has become a giant in just six years. Latin America figures to be an important part of the company's international strategy moving forward, and presents the firm with great growth opportunities.
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