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Chinese state-owned oil and gas majors have sold pipeline networks worth a total $56 billion as part of a government plan to restructure the nation's energy industry by setting up a separate pipeline operator.
Bloomberg reports that the assets were sold above book value, quenching investor concerns that the government could try to shortchange the energy giants. PetroChina, the report said, got 1.2 times the book value of its pipeline assets, and Sinopec got 1.4 times the book value of its assets.
The assets are being bought by the new state-owned entity, dubbed China Oil & Gas Network, or PipeChina, which was set up last December. The latest deal under this restructuring drive was only announced yesterday, for a natural gas pipeline that was the property of Sinopec. The state giant sold it to PipeChina for $457 million.
The purpose of PipeChina was to combine all midstream assets of the state oil and gas companies into a separate entity in order to make these companies focus more on their upstream activities. This fit in with the country’s plans to boost local oil and gas production in order to reduce its reliance on imports. According to analysts, PipeChina could be worth between $80 billion and $105 billion if it went public.
As part of the reform, China will also open up access to its oil and gas pipeline infrastructure to foreign and private oil and gas producers. The move is seen as the biggest energy reform in the country since 1998 when a restructuring round led to the creation of Sinopec and PetroChina.
“We see these announcements as positive for the companies as the valuations are market friendly,” Sanford C. Bernstein & Co. analysts said in a note quoted by Bloomberg. Following the deals, both PetroChina and Sinopec were likely to reward their shareholders with special dividends, which was more good news for said shareholders. The two will also receive minority stakes in the new company.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.