News that engineers from PetroChina will soon be trudging over Western Canada's oil sands, home to the biggest oil deposits outside Saudi Arabia, is a welcome boost for the region. Not only does the Chinese company's $1.7bn investment value Athabasca Oil Sands' reserves more highly than other recent deals, it represents a rare influx of capital, full stop. Oil majors have shelved projects in the area since the slide in the oil price.
The deal is also a neat summary of PetroChina's growth problem. In spite of a lot of bluster earlier this year about “seizing historic opportunities,” few of its deals move the needle. Since December it has spent about $3.4bn on bits and pieces – gas fields in Kazakhstan and a Singapore refinery – while taking various assets from its parent. Some deals the group has coveted, such as Verenex's Libyan oil properties or Repsol's YPF, have stalled, apparently for political reasons. Paying over the odds for a potential 35,000 barrels a day in Alberta – 1 per cent of the group's current output – is only small consolation.
Yet what else can it do? Domestic oil production in the first half fell 5 per cent, an uncomfortable reminder that much of PetroChina's portfolio outside its core Daqing field, responsible for about a quarter of total output, is too costly to lift at these prices. Writedowns on these old and inefficient assets – depreciation charges were up by a quarter in the first half, year on year – are taking their toll. Return on common equity was more than 26 per cent five years ago, in line with the international oil companies. Last year, as the IOCs held steady at 25 per cent, PetroChina fell to 15. With projected year-end gearing at less than 20 per cent, funding transformational deals is not a problem. But actually doing them is.