PetroChina gas distribution unit Kunlun Energy will sell oil and gas fields to sharpen focus

PUBLISHED : Thursday, 12 May, 2016, 5:41pm
UPDATED : Thursday, 12 May, 2016, 6:02pm

Kunlun Energy, the natural gas distribution arm of the nation’s largest oil and gas producer PetroChina, will seek to sell its oil and gas production assets either to its parent or third parties, as part of a restructuring to focus on the gas logistics business.

Kunlun will execute the plan “at an opportune time,” Huang Weihe, who has assumed the chairman position for just under three months, told reporters after the Hong Kong-listed firm’s annual shareholders meeting on Thursday.

He acknowledged that currently depressed international crude oil and gas prices has raised concerns about the timing of the asset sale plan.

“Work on the disposal has started and some progress has been made,” he said. “The assets have already achieved positive cash flow [given the oil price rebound in recent months] and the disposal timing will depend on discussions with overseas governments and the oil price trend.”

As for domestic fields, the disposal time will hinge on the expiry date of some production contracts.

Kunlun owns oilfields in Xinjiang Uygur autonomous region and Liaoning province, Thailand, Peru, Oman, Kazakhstan and Azerbaijan, he added.

They recorded a combined net loss of HK$2.9 billion last year, compared to a profit of HK$1.55 billion in 2014, due to a 49 per cent plunge in average crude oil selling price, a HK$1.88 billion currency loss from the Kazakhstan currency’s devaluation and HK$1.68 billion of oil asset impairments.

Kunlun Energy in December agreed to buy Kunlun Gas, PetroChina’s downstream natural gas distribution business, spanning over 100 cities, for 14.8 billion yuan (HK$17.64 billion). The deal is not yet complete.

Huang said the combination of Kunlun Gas’ effective management system and Kunlun Energy’s established fund-raising channels as a listed firm will result in an integrated gas supply chain.

Kunlun Energy, primarily a midstream distributor and pipeline operator, sold 6.9 billion cubic meters of gas in 2014, compared to 8.4 bcm by Kunlun Gas, a downstream city-gas distributor, according to a Sanford Bernstein research report.

Kunlun Gas’ operating profit margin of 10.2 per cent in 2014 lagged behind its privately-held rivals’ average of 20 per cent, according to Sanford Bernstein senior analyst Neil Beveridge.

Huang said Kunlun’s year-on-year gas sales growth has rebounded to 8 per cent in the first four months of the year, thanks to a gas price cut in November by Beijing.

He did not respond directly to a query on whether its natural gas sales operations, including liquefied natural gas (LNG) processing, would be able to return to the black this year, only saying two processing plants could come on stream by end of next month.

The operation had a net loss of HK$580 million last year, compared to a profit of HK$415 million in 2014.

Kunlun Energy is forecast to see a net profit of HK$4 billion this year, according to the average estimate of 15 analysts polled by Thomson Reuters. Net profit slumped to HK$137 million last year from HK$5.6 billion in 2014.

Kunlun Energy’s shares rose 2.6 per cent to HK$6.21 on Thursday. The Hang Seng Index fell 0.7 per cent.