VZCZCXRO9696
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3083/01 1290857
ZNR UUUUU ZZH
P 090857Z MAY 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 7631
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 003083 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EAP/CM PSECOR, GWARD AND EEB/ESC SIMONS, HAYMOND, WECKER 
DOE OEA FOR CUTLER, NAKANO 
TREASURY FOR OASIA DOHNER, CUSHMAN 
USDOC FOR 4420/ITA/MAC/CEA/MCQUEEN 
USTR FOR BHATIA/STRATFORD/WINTER/ALTBACH/MCCARTIN 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV EPET EFIN CH
SUBJECT: CHINA/ENERGY: PETROCHINA ANNOUNCES MAJOR BOOST TO CHINA'S 
OIL RESERVES 
 
 
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SUMMARY 
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¶1. (SBU) China's largest oil producer, PetroChina, announced a major 
oil discovery in the Bohai Bay (water near Beijing-Tianjin) last 
week.  The oil is considered to be of high quality and is easily 
recoverable, according to our contacts.  Although estimated by the 
company to be around 7 billion barrels, China's rising oil 
consumption will easily absorb the domestic production gains created 
by the find.  News of the discovery increased the company's share 
value by some 14 percent, making PetroChina the third highest valued 
energy company in the world.  The company is planning an additional 
stock listing in Shanghai in the near future, and the boost in 
valuation will likely be reflected in higher proceeds.  The 
anticipated infusion of cash potentially positions the company to 
launch an overseas acquisition effort at some time in the future. 
End Summary. 
 
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PETROCHINA ANNOUNCES LARGE BOHAI BAY OIL DISCOVERY... 
--------------------------------------------- ------ 
 
¶2. (SBU) China's largest oil producer, PetroChina, announced on May 
4 a major oil discovery in the Bohai Bay Basin.  The company stated 
in its press release that the Jidong Nanbao Oilfield, located off of 
the Hebei Province port city of Tangshan, holds reserves of more 
than 1 billion tons, or 7 plus billion barrels.  Reports suggest the 
oil's quality is high and the projected costs of its production 
relatively low.  An investment bank energy analyst told us that the 
oil field should be producing about 160,000 barrels per day by 2010. 
 The analyst acknowledged rumors we had heard that the field's 
geology may be more complicated than is being admitted by PetroChina 
(potentially affecting the economic recoverability of the oil), but 
noted that the general consensus of experts is that the field will 
be a large producer. 
 
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...DRIVING THE COMPANY'S MARKET VALUE PAST BP, GAZPROM 
--------------------------------------------- ------- 
 
¶3. (SBU) PetroChina's market value grew significantly as its stock 
moved upward 14 percent on the day of the announcement.  The 
international financial press noted that the single day increase in 
PetroChina's stock bumped it up from the fifth to the third most 
valuable publicly traded oil company in the world, worth an 
estimated USD 233 billion.  The top five are now: ExxonMobil, Royal 
Dutch Shell, PetroChina, Gazprom, and British Petroleum.  Our 
investment bank contacts all listed PetroChina as a "buy" in notes 
distributed to clients over the weekend, claiming the double-digit 
share price increase is justified by the discovery and by broader 
underweighting of energy stocks in institutional Asian market 
portfolios. 
 
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THE NEW FIELD DRIVES CHINA'S OIL RESERVES HIGHER 
--------------------------------------------- --- 
 
¶4. (SBU) At the end of 2006, China had 24.5 billion barrels of oil 
reserves, according to a recent study by a renowned international 
energy consultancy.  This ranked China fifteenth worldwide in total 
oil reserves.  Utilizing the same oil reserves formulation used by 
the energy consultancy (see note below for more on this), the Bohai 
Bay find will add an additional 5 billion barrels to China's 
reserves.  This addition moves China past Libya and Brazil on the 
list, absent significant discoveries or production output changes in 
other countries, but is not large enough to move China past Qatar 
(34.5 billion barrels), Nigeria (36.2 billion barrels), or 
Kazakhstan (41.4 billion barrels) into the top ten of the reserve 
list.  The discovery will likely generate more calls for offshore 
exploration in the Bohai Bay and beyond.  Such a call was made in 
the local press by a senior researcher with the Ministry of Land 
Resources in April as he encouraged greater deep sea exploration 
beyond the Bohai Bay basin (where more than 80 percent of proven 
offshore reserves are located). 
 
¶5. (SBU) Note: The energy consultancy reserve figure is based upon a 
standard "proved plus probable" formulation that implies a 50 
percent probability of recovering at least 5 billion barrels of the 
announced 7 billion barrel find.  There are two kinds of reserves: 
proved and unproved.  Proved reserves have a 90 percent probability 
of recovery.  Among unproved reserves is a sub-category called 
"probable," which is those unproved reserves that have a 50 percent 
 
BEIJING 00003083  002 OF 002 
 
 
chance or greater of recovery.  The "proved plus probable" 
formulation therefore counts in reserve figures the overall quantity 
that has a 50 percent or greater chance of recovery.  See 
www.spe.org for more on these definitions. End Note. 
 
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DESPITE FIND, ENERGY INDEPENDENCE REMAINS A PIPE DREAM 
--------------------------------------------- ------- 
 
¶6. (SBU) Local Chinese and English media have hailed the Bohai Bay 
find as another significant step towards energy independence. 
National Development and Reform Commission (NDRC) Vice-Chairman Chen 
Deming, speaking in Saudi Arabia over the weekend, promoted China's 
potential to increase its oil and natural gas production, according 
to the China Daily.  While the new find represents such an 
opportunity in the oil sector, its significance in the face of 
China's rising consumption will be largely muted.  As noted above, 
analysts expect the new Bohai Bay field to produce 160,000 barrels 
per day by 2010.  This will represent at best only about five 
percent of China's daily needs by 2010, as computed against a 
conservative estimate of 8 million barrels per day consumed. (Note: 
China is on track to consume well over 7 million barrels per day in 
2007, according to international energy analysts. End Note.) 
 
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COMMENT: DISCOVERY COULD BOOST STOCK PROCEEDS 
--------------------------------------------- 
 
¶7. (SBU) An even more significant development may be the capital 
infusion into PetroChina resulting from its stock price increase. 
The company already has shares traded in New York and Hong Kong.  A 
Chinese media report recently stated that PetroChina is awaiting 
approval for a further listing in Shanghai, valued at approximately 
USD 4 billion.  The higher valuation resulting from the Bohai 
discovery could boost the proceeds of that listing significantly. 
With extra cash in hand, the firm could potentially be emboldened to 
launch an acquisition effort abroad similar to China National 
Overseas Oil Company's (CNOOC's) aborted effort to acquire Unocal in 
¶2005. 
 
RANDT