SPINOFF IN THE PIPELINE?

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

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