PetroChina Interested in Husky Assets

PetroChina is considering a multi-billion dollar acquisition of the upstream business in Canada of Husky Energy Inc., Canada's fifth largest integrated oil firm. This acquisition is part of the company's drive to increase its petroleum reserve base and shareholder value.

PetroChina is interested in acquiring Husky at about $4.4 billion. PetroChina is only interested in the Canadian upstream assets, not the overseas assets. An acquisition target like Husky could instantly add to PetroChina's reserve base.

PetroChina, China's biggest oil and gas producer and second in the refining rankings to Sinopec, is conducting an internal feasibility study for the deal but formal negotiations have yet to start.

Husky's Canadian assets are estimated at approximately 930 million barrels for proven and probable reserves, with natural gas at 2.2 trillion cubic feet (tcf). At the end of 2000, PetroChina had proven oil reserves of 11 billion barrels and gas reserves of 32.5 tcf.

Husky's share price was boosted last autumn by speculation of a possible takeover bid. At the time, the company admitted it was in talks with a third party but no deal has been announced. Husky chief executive John Lau declined to comment on takeover speculation in early February when Husky presented fourth-quarter results. He forecast the company's total oil and gas production to run at 300,000 to 320,000 barrels per day of oil equivalent in 2002.

PetroChina's crude production was estimated at 2.1 million barrels per day in 2001, while natural gas output was some 504 billion cubic feet for the year.

Husky, majority-owned by interests controlled by Hong Kong tycoon Li Ka-shing, has western Canadian heavy oil and natural gas production, as well as a stake in the newly producing Terra Nova project off the Newfoundland coast. It also holds 40 percent in the Wenchang offshore development in the South China Sea in partnership with CNOOC. The project is due on stream in the second quarter this year.

The Chinese government has since early 2001 encouraged state oil companies to expand overseas investment to increase hydrocarbon reserves and make up for dwindling domestic output. China's top three oil firms PetroChina, Sinopec and CNOOC also are under pressure to enhance shareholder value since they were partly sold off in 2000 and 2001.