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PetroChina Mulls $85 Billion Spinoff

PetroChina may be considering a spinoff for its oil and gas pipeline business, which could be worth as much as $85 billion, according to investment analysts. The suggestion has been sparked by expectations that China’s largest oil producer will report its worst financial figures in history, and by energy industry reforms being drafted by the central government.

The network spans across China, from the west to the east, supplying crude oil and natural gas to all major cities in the country. Its total length is 48,200 miles, of which more than 65 percent is natural gas pipelines. As a whole, PetroChina is the biggest oil and gas pipeline operator in China, with a 71-percent market share.

Back in 2015, Bloomberg recalls, the Chinese government had plans to take the pipeline business away from PetroChina and peer Sinopec, and unite them into a separate company. These plans have been dropped, however, leaving the future of the operations hanging in the air.

A spinoff or a listing would be the way to go, analysts believe, as shareholders seek an improvement of dividends in the absence of any real chance for expanding domestic production and boosting profits. PetroChina, like all other large Chinese oil and gas companies, has been suffering from reserve depletion in recent years.

Earlier this year, the company, which is the listed business of state-owned giant CNPC, warned that its profit for 2016 could be 70-80 percent lower than the 2015 result because of the low oil prices. The net result, PetroChina said, could turn out to be the lowest since 1996.

However, earlier this month, Goldman Sachs said in a note that it will maintain its “Buy” stance on PetroChina, expecting solid improvements in performance this year. The improvement will come on the back of higher prices as well as the company’s cost-cutting efforts and strong fundamentals, including free cash flow and cash return.

By Irina Slav for Oilprice.com

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