PetroChina ranks as world number 1

Bloomberg

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PetroChina overtook Exxon Mobil by market capitalization, regaining its rank as the world’s most valuable company after China’s stimulus plan caused a surge in the nation’s stocks this year.

State-controlled PetroChina’s Shanghai-traded shares jumped 30 percent this year for a value of $336.4 billion, surpassing Exxon’s $335.9 billion as of May 22. Government spending has increased fuel consumption in China this year, while the worst recession since the Great Depression curbs demand in the U.S.

"If you have to buy an energy stock, you want to buy the dominant one in China," said Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong. "China’s fuel demand is growing, while in Northern America and Europe demand is actually falling."

China’s benchmark Shanghai Composite Index has surged 43 percent this year on optimism that the $586 billion economic stimulus introduced by the government in November and record bank lending will counter a slump in exports and boost growth. The Standard & Poor’s 500 Index has dropped 1.8 percent.

Exxon shares have declined 14 percent this year. PetroChina was listed in Hong Kong in 2000 and became the world’s first trillion-dollar company after selling shares in Shanghai in November 2007, when it first passed the U.S. oil company.

Exxon, which traces it roots to the 1880s and John D. Rockefeller’s Standard Oil Trust, had regained the top ranking in March last year after PetroChina’s Shanghai stock slumped by more than 50 percent as exploration costs climbed and government controls prevented the company from increasing fuel prices.

Energy reserves

PetroChina’s reserves surpassed those of Exxon last year after the Chinese company added the equivalent of 890 million barrels of oil through discoveries and acquisitions. Exxon’s reserves declined by 3 percent in 2008 to the equivalent of 21.1 billion barrels, enough to sustain output for almost 15 years.

China agreed to give Russia, Kazakhstan, Brazil and Venezuela $49 billion in loans this year in exchange for oil supplies. The government is tapping its $1.95 trillion foreign-exchange reserves to buy energy assets made cheaper by oil’s decline from a record in $147.27 a barrel in July.

PetroChina last month agreed to buy a 50 percent share in AO Mangistaumunaigas for as much as $1.4 billion after China agreed to lend $10 billion to Kazakhstan, the largest energy producer in the former Soviet Union after Russia.

PetroChina’s status as a state-controlled entity allows it to accept lower returns from oil-rich nations in exchange for access to reserves under terms Exxon would find unacceptable, said Douglas Ober of Petroleum & Resources Corp. "PetroChina’s state orientation lets it look at things differently than Exxon does," Ober said. "Exxon has a more strictly economic interest, so if their returns are going to be reduced by requirements to build highways or hospitals or schools so they can drill off the coast, they’re going to take that into consideration."

PetroChina’s 14 percent return on capital is less than half of Exxon’s 36 percent return, the highest among the world’s biggest 10 oil companies by sales, according to data compiled by Bloomberg. Exxon is bigger by sales and profit.

The U.S. company raked in $425 billion in sales last year, or $60.45 for every man, woman and child on the planet. Exxon’s 2008 profit of $45.22 billion was the most ever for a U.S. corporation, marking the fourth consecutive year of record-setting results. PetroChina’s net income was 114 billion yuan ($16.7 billion) last year on sales of 1.1 trillion yuan.

Ober said he doesn’t own shares of any Chinese energy firm because of concern over their accounting.

"I have no doubt that over time, China’s companies should grow to be among the world’s largest," said Victoria Mio, a senior portfolio manager. "But it has to be in terms of profitability, rather than inflated market capitalization."