Kunlun Energy aiming to complete oil and gas assets disposal by year end to focus on distribution

Chairman underlines that a sale to parent PetroChina not guaranteed, with his priority to ‘maximise shareholder value’

PUBLISHED : Friday, 02 June, 2017, 3:38pm
UPDATED : Friday, 02 June, 2017, 10:25pm

Kunlun Energy is aiming to complete the disposal of its oil and gas production assets by the end of this year to sharpen its focus as the listed natural gas distribution unit of oil and gas giant PetroChina, its chairman said on Friday.

Huang Weihe said it will take time to execute the planned assets sale since it involves various jurisdictions, including in China, Thailand, Peru, Oman, Kazakhstan and Azerbaijan.

“We are striving to complete the sale of some, if not all, of our upstream production assets before the end of this year,” he told reporters after the company’s annual shareholder meeting, “so that we can realise our objective of focusing on gas distribution”.

Huang said it has agreed with parent PetroChina and ultimate parent China National Petroleum that upstream production is better operated by the parent firms.

But he emphasised it was still possible that those Kunlun upstream assets could be sold to third parties, since Kunlun’s priority is to “maximise shareholder value”.

Kunlun’s oil and gas production assets were worth HK$4.3 billion (US$551.8 million) at the end of last year, compared to HK$137 billion of all its assets, according to its annual report.

They recorded a pre-tax profit of HK$14 million, compared to a loss of HK$3.9 billion in 2015 when it booked HK$1.7 billion of asset impairments, due to a slump in oil prices.

Long-distance natural gas pipeline transmission contributed 74 per cent of Kunlun’s core net profit excluding asset impairments, the report revealed.

But the chairman said it will face a cut in profits on existing operations after Beijing last October imposed an 8 per cent return cap calculated on assets, down from 10 to 12 per cent in earlier years.

“But since some of the implementation details, such as whether storage assets are included in the asset base are not clear, it is too early to give an accurate impact,” he said, adding so far transmission tariffs have not been slashed.

Kunlun shares closed 0.7 per cent higher at HK$6.89 on Friday. They have risen 19 per cent so far this year, compared with an 18 per cent gain of the Hang Seng index.

Sanford Bernstein’s analysts estimated last year when the government policy was first unveiled, that Kunlun’s average tariff could be cut by as much as 36 per cent over two years.

They expected the profit reduction would not be made up for by the coming on stream of the fourth pipeline linking gas fields in Shaanxi province and Beijing next year.

Huang said the pipeline, involving over 20 billion yuan (US$2.94 billion) of investment, would be a major profit contributor regardless of the policy change.

Meanwhile, Huang said another of Beijing’s policies, a proposed 6 per cent return cap on assets for downstream city-gas distribution operation, will be even more complicated for finalisation and execution.

“This is not only a matter of a policy handed down from Beijing, it also needs to be discussed with local governments since it involves gas price adjustments that affect end users,” he said.

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