Gi­ant oil com­pany merger re­ports un­con­firmed

China Daily (Canada) - - FRONT PAGE - By DU­JUAN du­juan@chi­nadaily.com.cn

Shares in China Petroleum and Chem­i­cal Corp, of­ten re­ferred to as Sinopec, rose 3.4 per­cent on Wed­nes­day — the first trad­ing day af­ter the Spring Fes­ti­val hol­i­day — af­ter ru­mors the com­pany was about to be merged with PetroChina Co Ltd, the coun­try’s largest oil and gas pro­ducer.

China’s top re­finer, Sinopec’s stock gained 0.2 yuan ($0.03) to close at 6.09 yuan on the Shang­hai Stock Ex­change af­ter ris­ing at one point to 6.19 yuan.

Shares in PetroChina also rose 1.35 per­cent on the ex­change, closing at 11.23 yuan, peak­ing at one point at 11.56 yuan.

An­a­lysts said the stock rises had been sparked by a re­port in The Wall Street Jour­nal, which re­ported that China’s lead­er­ship was study­ing the fea­si­bil­ity of merg­ing the na­tion’s largest oil com­pa­nies in an ef­fort to “take on the likes of Exxon”.

It said one per­mu­ta­tion was a merger of Sinopec and China Na­tional Petroleum Corp, the par­ent com­pany of PetroChina.

An­other was to com­bine China Na­tional Off­shore Oil Corp and SinoChem Group.

How­ever, none of the four com­pa­nies con­firmed the re­port. Lyu Dapeng, a spokesman for Sinopec, also re­fused to com­ment on the re­port.

One anony­mous in­dus­try source sug­gested the ru­mors may have come from the State-owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion, which is cur­rently work­ing on the re­form and re­struc­tur­ing of Chi­nese State-owned com­pa­nies in an ef­fort to raise ef­fi­ciency and com­pet­i­tive­ness. How­ever, no deal had been fi­nal­ized, the source said.

Jef­feries Hong Kong Ltd, a US-based global se­cu­ri­ties and in­vest­ment bank­ing group, said it was the first time it had heard of the pro­posed merger plan.

“We be­lieve this is more ‘brain­storm­ing’ and ‘think­ing out­side of the box’ than a fea­si­ble pro­posal,” Jef­feries said in a state­ment.

It con­ceded

there

was some logic to a CNOOC and SinoChem merger but that a com­bined CNPC and Sinopec would be a mo­nop­o­lis­tic mon­ster twice the size of Exxon and, as such, could ef­fec­tively “die on the vine”, as the com­pany put it.

Jef­feries said CNPC is al­ready big­ger than Exxon in terms of pro­duc­tion, proven re­serves and pipe­line as­sets. In ad­di­tion, Sinopec’s up­stream as­sets are al­ready con­sid­ered large enough, hav­ing ac­quired around 40 bil­lion yuan of over­seas as­sets over the last five years. It al­ready pro­duces around 47 per­cent of China’s re­fined prod­ucts.

In such cir­cum­stances, “cre­at­ing an even larger, more mo­nop­o­lis­tic na­tional oil com­pany would be a grave mis­take”, Jef­feries said.

A merger be­tween CNOOC and SinoChem would cre­ate a fully in­te­grated up­stream-down­stream com­pany. Li Li, re­search and strat­egy direc­tor at ICIS-C1 En­ergy, a con­sul­tancy in Shang­hai, said a merger strat­egy could cer­tainly help cut costs and stream­line op­er­a­tions dur­ing the on­go­ing cri­sis in global crude oil prices, but that such a su­per-size merger would be very dif­fi­cult to achieve.

“The idea might be to in­crease ef­fi­ciency of the two na­tional oil com­pa­nies, but that would not hap­pen if they had no com­peti­tors in the do­mes­tic mar­ket,” she said.

Lin Bo­qiang, direc­tor of the China Cen­ter for En­ergy Eco­nomics Re­search at Xi­a­men Uni­ver­sity, said any merger might be ben­e­fi­cial for the Chi­nese com­pa­nies on the over­seas mar­ket, but do­mes­ti­cally the op­po­site is more ben­e­fi­cial, with fur­ther com­pe­ti­tion needed.

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