SPINOFF IN THE PIPE­LINE?

PetroChina’s mas­sive gas and crude oil net­work may be worth 585b yuan, say an­a­lysts

New Straits Times - - Business -

AS China’s big­gest oil and gas pro­ducer pre­pares to re­port what may be its worst-ever earn­ings, in­vestors are fo­cused on bil­lions of dollars that could be un­locked by a spinoff of its mas­sive pipe­line net­work.

PetroChina’s nat­u­ral gas and crude oil trans­porta­tion sys­tem, stretch­ing from the coun­try’s re­mote bor­ders with Cen­tral Asia to ma­jor coastal ci­ties, could be worth at least 585 bil­lion yuan (RM376.5 bil­lion), ac­cord­ing to an­a­lysts at San­ford C. Bern­stein & Co and Jef­feries Group.

As China’s gov­ern­ment pre­pares to un­veil en­ergy in­dus­try re­forms, spec­u­la­tion has grown that the com­pany and its par­ent, China Na­tional Pe­tro­leum Corp, may spin off the pipelines into an in­de­pen­dent com­pany.

“While the tim­ing is un­clear, there is a sense that man­age­ment is in favour of a spinoff,” said Neil Bev­eridge, Bern­stein’s head of Asia-Pa­cific oil and gas re­search, who has a buy rat­ing on the stock.

PetroChina’s pre­ferred op­tion was an ini­tial public of­fer­ing that would leave it with a con­trol­ling stake, he said.

PetroChina, which Gold­man Sachs Group es­ti­mated trails only Exxon Mo­bil Corp and Ros­neft PJSC as the world’s big­gest oil com­pany by re­serves, is suf­fer­ing de­pressed prices and slump­ing do­mes­tic pro­duc­tion.

While out­put is un­likely to re­bound with­out a surge in prices, in­vestors are hun­gry for a spinoff to un­lock cash that may be used to fund fat­ter div­i­dends.

The fu­ture of PetroChina’s pipelines has been un­clear since 2015. The gov­ern­ment orig­i­nally planned to strip the com­pany, as well as ri­val China Pe­tro­leum & Chem­i­cal (Sinopec), of the as­sets to cre­ate a state-owned en­tity.

That idea has been scaled back, though reg­u­la­tors are still push­ing for greater in­de­pen­dence of the pipe­line op­er­a­tions and eas­ier ac­cess for all users.

The com­pany may spin off the unit as soon as the end of this year, the Hong Kong Eco­nomic Jour­nal re­ported last month.

Gor­don Kwan, head of Asia-Pa­cific en­ergy re­search at No­mura Hold­ings, sees oil prices need­ing to re­bound to US$60 (RM265.75) be­fore any such move.

Bern­stein’s Bev­eridge sees it de­layed un­til the pipe­line seg­ment ac­counts for less than half PetroChina’s rev­enue, which may not hap­pen un­til next year. Bloomberg

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