Traffic moves past a PetroChina Co. gas station in Hong Kong, China

PetroChina Co. agreed to pay as much as $2.2 billion to buy Singapore Petroleum to gain a foothold in Asia’s largest oil trading center in an acquisition that may extend China’s influence over global resources pricing.

PetroChina, China’s biggest oil producer, will buy 45.5 percent of the Singapore refiner for S$1.47 billion ($1 billion), or S$6.25 a share, from Keppel Corp., 24 percent higher than the last-traded price of S$5.04 at the May 22 close. The transaction, when completed, will trigger a general offer for the remaining shares, the Beijing-based oil company said Monday.

About 10 million barrels of oil, or 12 percent of the world’s daily output, pass through the Straits of Malacca off Singapore each day, according to the International Energy Agency. The Chinese government introduced a market-based fuel-pricing system in December that takes into account crude oil costs and ensures refiners a profit.

“The deal gives PetroChina immediate access to increased refining capacity to take advantage of higher domestic prices down the road,” said Gordon Kwan, an energy analyst at Mirae Asset Securities in Hong Kong. “On the flip side, if China fails to enforce the domestic product pricing reform, PetroChina can utilize SPC as a vehicle to sell fuel prices at international levels.”

Singapore Petroleum shares rose 20 percent to S$6.05 while Keppel Corp., the world’s largest maker of oil rigs, climbed 4.6 percent to close at S$7.28. PetroChina shares rose 1.9 percent to 13.1 yuan at the close in Shanghai and fell 0.8 percent to HK$8.32 in Hong Kong.

Offshore platforms

The Beijing-based oil producer, whose market value is exceeded only by Exxon Mobil Corp., has gained 23 percent in Hong Kong trading this year, while the benchmark Hang Seng index advanced 18 percent.

Keppel Corp. expects a profit of S$660 million from the sale of its stake in Singapore Petroleum, the company said in a statement to the Singapore stock exchange Tuesday.

“The sale is in line with Keppel Corp.’s strategy to divest its non-core assets and concentrate on its core business activities,” the company said.

PetroChina and Keppel Corp. also agreed “in principle” to cooperate in offshore oil platforms, the Chinese company said in a statement on the website of the State-owned Assets Supervision and Administration Commission Tuesday, without elaborating.

Singapore Petroleum has stakes in oil fields in Indonesia, Australia, Vietnam and Cambodia and also owns undersea pipelines carrying gas from Indonesia to Singapore and storage terminals. The company jointly owns Singapore Refining Co., one of the three biggest oil-processing plants in the city state, with Chevron Corp., the second-largest US oil company. The refinery has capacity to process 285,000 barrels of oil a day.

$100 billion of trades

Singapore refines, stores and reexports oil to countries including Indonesia, Vietnam and China. About $100 billion worth of fuels are traded a year in the city state.

The acquisition is meant to “become a platform for the implementation” of PetroChina’s international strategy and “to provide a broader foundation and stable path for development,” the Beijing-based oil producer said.

PetroChina won approval from shareholders May 12 to sell as much as 100 billion yuan ($15 billion) of bonds to fund exploration, pipeline and overseas projects. Chairman Jiang Jiemin told the annual general meeting the company plans to spend 233 billion yuan this year to buy and upgrade assets.

“China is flush with cash and commodities aren’t inexhaustible, so it makes sense for them to go out and buy resources for future use,” Ong Eng Tong, a Singapore-based consultant with Hamburg-based oil trader Mabanaft Gmbh., said in a telephone interview.

Loans-for-oil agreements

China agreed to give Russia, Kazakhstan, Brazil and Venezuela $49 billion in loans this year in exchange for oil supplies. The government plans to tap its $1.95 trillion foreign-exchange reserves, the world’s largest, for acquisitions.

The government of the world’s second-largest oil user is encouraging local companies to buy commodities and energy assets made cheaper by crude’s 58 percent decline from a record in $147.27 a barrel in July.

“This is just the beginning for PetroChina to buy assets directly to boost its oil and gas reserves,” China Merchants Securities Ltd. analyst Qiu Xiaofeng said by telephone from Shanghai. “But the value of this acquisition isn’t very large, so it won’t have a big impact on PetroChina’s profit.”

PetroChina’s main markets include Indonesia, Vietnam, Singapore, China and South Korea, according to the company’s statement. The company and smaller rival China Petroleum & Chemical Corp., or Sinopec, have announced plans to expand refining capacity to meet demand for fuels in the world’s third-largest economy.

Source: Bloomberg