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China’s new pipeline

company gets up and running

PipeChina has taken over the pipeline assets belonging
to the country’s Big Three oil and gas companies

COMMENTARY STATE-OWNED China Oil & Gas Pipeline (Pipe- Sinopec, meanwhile, will receive a
China) has taken control of the country’s network CNY52.7bn ($7.52bn) payment and a 14%
of oil and gas pipelines from the Big Three, realising stake in PipeChina, which equates to a total
WHAT: the central government’s ambition of separating the consideration to CNY122.7bn ($17.51bn).
PipeChina has paid upstream from the midstream. The deal represents a 1.2-times premium
$56bn in equity and PipeChina paid $56bn to China National on the book value of CNPC’s assets, while Sin-
cash for CNPC, Sinopec Petroleum Corp. (CNPC), Sinopec and China opec will receive 1.4 times the book value of its
and CNOOC’s midstream National Offshore Oil Corp. (CNOOC) last assets. CNOOC will receive a 3% stake, while
assets. week. While the deal sees each of the three SASAC will control 30%.
state companies receive a stake in the new “We see these announcements as positive
WHY: pipeline operator, the State-owned Assets for the companies, as the valuations are mar-
The government wants Supervision and Administration Commis- ket friendly,” Sanford C. Bernstein & Co. said
to break the Big Three’s sion (SASAC) will hold the largest stake and in a note. It added that PipeChina’s CNY500bn
monopoly over both the ultimate control of the company. ($71.34bn) capitalisation “would make it one
upstream and midstream. The move is an essential step towards not of the largest pipeline companies in the world
just transforming the country’s midstream but should it come to market”.
WHAT NEXT: also shaking up the upstream and, to a lesser Bernstein’s Neil Beveridge said last week
PipeChina must extent, the downstream. The move may have that the country’s restricting of operational
overcome existing far-reaching implications for the state majors, control of the pipeline networks would “fun-
infrastructure bottlenecks but will the transition towards a centralised damentally change” China’s gas market. He
to develop a coherent pipeline operator smooth the way for new for- said: “The business of gas transport will be
national strategy. eign and domestic players to enter the coun- separated from the business of gas selling …
try’s energy markets? there will be greater competition.”

Deal in detail Pipeline promise
CNPC will receive a CNY119bn ($16.98bn) cash By breaking the Big Three’s stranglehold over the
payment as well as a 29.9% stake in PipeChina, country’s oil and gas pipelines, Beijing is hoping
bringing its total consideration to CNY268.7bn to improve prospects for private and foreign
($38.33bn), according to Morgan Stanley’s anal- investment in the upstream. The central gov-
ysis of company filings. ernment has been talking about liberalising

P10 www. NEWSBASE .com Week 30 30•July•2020