PetroChina's Prospective Partnership

State-controlled Chinese energy giant PetroChina (PTR - Analyst Report) is in talks with Vietnam National Petroleum Corporation, or Petrolimex, for a $212 million project that will strengthen business ties between the two companies.

Under the venture, the companies plan to build a pipeline having an initial annual capacity of 10 million tons of petrol, diesel and other products. The pipeline will connect PetroChina’s Qinzhou refinery in Guangxi province with Petrolimex' K130 terminal in Vietnam's Quang Ninh province.

With the construction of this network, PetroChina expects to steadily supply Chinese refined products and oil to the Vietnam market at economical prices. The pipeline is expected to come online by 2014.  

Petrolimex management stated that, as a part of this venture, it is bringing up a new storage unit, named K1, at the Hai Ha district in Quang Ninh. The first phase of the plant will have a storage capacity of 60,000 cubic meters of gasoline and 90,000 cubic meters of diesel.

Headquartered in Beijing, PetroChina is engaged in exploration, development, production and sale of crude oil and natural gas; refining, transportation, storage and marketing of petroleum products; manufacture and sale of chemical products as well as transmission of natural gas, crude oil and refined products.

We believe that strong growth prospects exist for PetroChina’s downstream business segment, aided by high consumption of refined petroleum products by automobile owners. Moreover, the company’s leverage to the fast-growing Chinese market, the turnaround in oil prices and the attractive potential in the unconventional gas/oil sands properties in North America add to our positive sentiment.

However, we remain concerned by the high-priced gas imports in the face of artificially low domestic gas sale prices. Sluggish oil production growth and heavy exposure to significantly mature producing areas also remain near-term headwinds, in our view.

We are maintaining our long-term Neutral rating on the stock. PetroChina, which competes with peers such as Sinopec Shanghai Petrochemical Co. Ltd. (SHI - Analyst Report) and CNOOC Ltd. (CEO - Analyst Report), currently retains a Zacks #3 Rank (short-term Hold rating).

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