PETROCHINA SIGNED JOINT VENTURE FRAMEWORK
AGREEMENT WITH INTERNATIONAL PARTNERS
FULL CONSTRUCTION OF WEST-EAST
PIPELINE PROJECT COMMENCES
4 July 2002, Hong Kong – PetroChina Company Limited (“PetroChina” or “the
Company” – SEHK stock code: 0857; NYSE Symbol: PTR) announced today that on
4 July 2002, PetroChina has signed a Joint Venture Framework Agreement (“JVFA”)
in Beijing with a group of international energy companies (“the International
Consortium”) in respect of the West-East Pipeline Project (“the Project”). PetroChina
also announced the commencement of full construction of the Project.
The International Consortium comprises six international energy companies and is led
by Shell International Gas Limited (“Shell”), OAO Gazprom (“Gazprom”) and
ExxonMobil China Gas Pipeline Limited (“ExxonMobil”), which will hold equal
interests in the Project. This is a group of strong partners for PetroChina for the
development, construction and operation of the Project. Deutsche Bank is
PetroChina’s sole financial advisor for the Project and associated financing.
Mr. Ma Fucai, Chairman of PetroChina, said, “the West-East Pipeline Project is an
important constituent of the national development strategy for the Western region of
China. The Project will transform PetroChina’s resource advantage into market
advantage and will bring the Company new growth momentum. The Project is
expected to generate attractive returns for PetroChina and will strengthen
PetroChina’s earnings growth in the coming years. The signing of JVFA marks a
significant achievement in PetroChina’s partner-selection process for the Project. We
look forward to a successful co-operation with the international partners on this
world-class integrated natural gas project.”
JVFA
Pursuant to the JVFA, PetroChina and the International Consortium members will:
(1) jointly participate in production sharing contracts for the development and
production of designated natural gas fields in the Tarim Basin to supply
natural gas to the pipeline (the “Upstream Projects”);
(2) enter into a contractual joint venture (the “Pipeline Contractual Joint
Venture”) for the construction and operation of the pipeline to transport
natural gas to the downstream market; and
(3) enter into an equity joint venture (the “Marketing and Sale Equity Joint
Venture”) for the marketing and sale of the natural gas to downstream
customers.
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PetroChina, the International Consortium and China Petroleum & Chemical
Corporation (“Sinopec”) will have interests in the Project of 50%, 45% and 5%,
respectively. The Project will have a co-operation term of 45 years.
Benefits to PetroChina
The completion and operation of the Project will result in the rapid growth of
PetroChina’s natural gas sales through the development of PetroChina’s substantial
natural gas reserves in the Tarim Basin. The Project is expected to increase
PetroChina’s profitability in the coming years and generate attractive returns for
PetroChina. In addition, the Project will further strengthen PetroChina’s position in
the natural gas market in China.
Upstream Reserves
PetroChina believes that the proven recoverable reserves of 304 billion cubic meters
(“BCM”) in the Kuche-Tabei Area of the Tarim Basin as confirmed by the Ministry
of Land and Resources of the PRC, are sufficient to supply the pipeline for over 20
years at the initial design capacity of 12 BCM per annum. In addition, PetroChina
will increase the natural gas reserves for the Project through the evaluation of new
natural gas discoveries in the Tarim Basin such as Dina-1 and Dina-2, and the
execution of an ongoing exploration program.
Natural gas from the Ordos Basin will be supplied to the pipeline by PetroChina on
completion of the eastern section of the pipeline for an interim period of 15 months
prior to the completion of pipeline construction to the Tarim Basin.
Pipeline Construction
The pipeline covers 4,000 kilometers starting at Lunnan in Xinjiang and ending in
Shanghai. The pipeline will pass through 10 provinces, autonomous regions and
municipalities. The pipeline has an initial design capacity of 12 BCM per annum.
The pipeline is being constructed in two phases. The eastern section from Jingbian to
Shanghai (1,516 kilometers) will be completed to enable gas supply to commence by
the end of 2003 and the western section from Lunnan to Jingbian (2,484 kilometers)
will be completed to enable gas supply to commence in 2005.
The construction and operation of the Project will be carried out in accordance with
health, safety, environmental and social standards in compliance with Chinese law
and as agreed by PetroChina and the International Consortium.
Downstream Markets
The target markets for the natural gas transported through the pipeline are Shanghai,
Jiangsu Province and Zhejiang Province in the Yangtze River delta region as well as
Henan Province and Anhui Province along the pipeline route. At present, PetroChina
has entered into 45 letters of intent with downstream customers. On the basis of the
forecast market demand and the pipeline construction schedule, the Project is
expected to supply gas in the amount of 2.8 BCM in 2004, 8.0 BCM in 2005, 10.0
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BCM in 2006 and 12.0 BCM in 2007. Following the signing of the JVFA,
PetroChina will establish a joint marketing and sales team with the International
Consortium to further develop the gas markets.
The weighted-average guidance price for the sale of natural gas transported through
the pipeline to downstream customers is RMB 1.29/m3, and is comprised of an
upstream production price of RMB 0.45/m3 and an average transportation tariff of
RMB 0.84/m3. PetroChina believes that the pricing for the natural gas is competitive
with competing fuels in the target markets.
Financing of the Project and Project Returns
The development and production of natural gas fields to supply the Project for 45
years is estimated to require a total investment of RMB 27.3 billion. PetroChina and
the International Consortium members will be jointly responsible for the funding of
the development and production of natural gas fields in proportion to their interests in
each of the upstream projects. PetroChina will undertake the exploration for natural
gas fields in the Tarim Basin and will be reimbursed for the costs and risks incurred in
such exploration pursuant to production sharing contracts entered into by PetroChina
and the International Consortium members.
The total investment for the Pipeline Contractual Joint Venture is estimated to be
approximately RMB 43.5 billion which will be funded as to 35% by equity provided
by PetroChina, Sinopec and the International Consortium in proportion to their
respective interests in the Pipeline Contractual Joint Venture and as to 65% through
debt financing. PetroChina’s equity investment for the Pipeline Contractual Joint
Venture is estimated to be approximately RMB 7.6 billion.
The total investment for the Marketing and Sale Equity Joint Venture has not been
decided but is expected to be minimal.
PetroChina’s expected total equity investment in the Upstream Projects and the
Pipeline Contractual Joint Venture is approximately RMB 22.6 billion. PetroChina
expects the pipeline and the Upstream Projects to earn respective returns of 12% and
above 15% after tax in real terms on an ungeared basis.
The West-East Pipeline Project is strategically important to PetroChina in terms of
value enhancement, economic efficiency and competitiveness.
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About PetroChina Company Limited
PetroChina was established as a joint stock company with limited liability under the Company
Law of the People’s Republic of China (the “PRC”) on 5 November 1999 as part of the
restructuring of China National Petroleum Corporation (“CNPC”). In the restructuring,
CNPC transferred to PetroChina most of the assets and liabilities of CNPC relating to its
exploration and production, refining and marketing, chemical products and natural gas
businesses.
PetroChina, one of the largest companies in the PRC in terms of sales, is engaged in a broad
range of petroleum and natural gas related activities, including:
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•
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Exploration, development and production of crude oil and natural gas;
Refining, transportation, storage and marketing, including import and export, of crude
oil and petroleum products;
Production and sale of chemical products; and
Transmission and sale of natural gas.
In 2001, PetroChina recorded a net profit of RMB46.8 billion (US$5.6 billion) approximately.
The American Depository Shares and H shares of PetroChina were listed on The New York
Stock Exchange and The Stock Exchange of Hong Kong on 6 April 2000 and 7 April 2000,
respectively.
Additional information on PetroChina can be found at the following website:
http://www.petrochina.com.cn
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Issued by PetroChina Company Limited. For further information, please contact:
Mr. Mao Zefeng, Assistant Secretary to the Board, PetroChina Company Limited
Tel: (852) 2899 2010
Fax: (852) 2899 2390
Email: [email protected]
Through Hill and Knowlton Asia Ltd. For enquiries, please contact:
Ms. Denise Maguire
Tel: (852) 2894 6312
Email: [email protected]
Mr. Julian Lee
Tel: (852) 2894 6213
Fax: (852) 2576 3551
Email: [email protected]
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