Exxon Mobil (XOM) And PetroChina (PTR): The US And China Play Nicely Together

There is a tremendous amount of agita about the Chinese arresting four Rio Tinto (RTP) employees on charges of trade secret infringement and bribery. The action came too soon after Rio Tinto broke off an agreement for Chinalco to buy nearly one-fifth of the UK and Australia-based company. It was hard to avoid the issue of whether the central government of the world’s most populous country had made the arrests as some form of retaliation. The Chinese are like that.

The friction about the West doing business with China became a bit less irritating recently. Exxon Mobil (XOM) and PetroChina (PTR) have agreed to do a huge transaction. To the surprise of some, Australia was involved in the partnership.

According to Reuters, “Australia and China struck their biggest trade deal on Tuesday, as the world’s two most valuable listed oil companies, Exxon Mobil and PetroChina, reached a $41 billion liquefied natural gas agreement.”

Exxon will supply LNG from the $50 billion (Australian dollars) Gorgon LNG project on Australia’s northwest coast. PetroChina will become the largest buyer of gas from Gorgon.

This is clearly a case where the love of profit has trumped politics and that may give the Australians some hope that the mess over Rio Tinto can still be resolved without it turning into a major diplomatic incident. China is often willing to push foreign multi-nationals hard enough to get its way but not hard enough to spoil its long-term commercial prospects. The Exxon/PetroChina deal was just too good for all parties to be true. The long knives were put away, at least temporarily.

Douglas A. McIntyre