CNPC to sell oil field stakes: report

Company pushing toward mixed-ownership structure

China National Petroleum Corporation (CNPC), the country's largest oil and gas producer by annual output, will introduce private investment to two of its oil fields, media reports said Tuesday, signaling the company's efforts to develop a mixed-ownership structure.

CNPC will sell 35 percent stakes in Northeast China's Jilin Oil Field and in Tianjin-based Dagang Oil Field to private investors, Shanghai-based news website jiemian.com reported Tuesday, citing insiders familiar with the matter, who also said the deal will be officially announced in January.

CNPC's press department was not available for comment on the issue by press time Tuesday.

Analysts said the deal is within expectations, as CNPC unveiled its blueprint for developing a mixed-ownership structure earlier this year, which included opening up its upstream sector to private capital.

"Oil giants have long been criticized for not opening up their core businesses of oil and gas exploration and production, so CNPC's move will represent big progress," Zhang Yeqing, an industry analyst with ICIS C1 Energy, told the Global Times Tuesday.

During China's annual legislative and advisory sessions held in March, CNPC Chairman Zhou Jiping told reporters that the company would seek cooperation with private capital to build pipelines as well as in developing untapped reserves, unconventional gas resources and its refining business.

"The oil field deal is a big attraction for domestic private refineries, which face difficulties in acquiring crude oil. But they might not have enough capital to buy such a massive asset," Gao Jian, an analyst with Shandong-based commodity consultancy Sublime China Information, told the Global Times Tuesday.

China regulates its oil imports via a quota system, and so far only the three State-owned oil giants and privately owned Guanghui Energy Co have been allowed to import crude oil. Many private refineries cannot get enough crude oil and so are unable to operate at full capacity.

However, the two oil fields are not among CNPC's most-profitable assets, as they have seen a decline in annual output recently, according to Gao.

Jilin Oil Field, which began to be explored in 1961, saw its output of crude oil decline to 5.27 million tons in 2013 from 5.75 million tons in 2012.

The potential sale also comes at a time when global oil prices have fallen by more than 30 percent since June to a four-year low.

PetroChina, the listed arm of CNPC, said profits in its upstream sector were down 0.7 percent year-on-year in the first nine months of 2014 due to falling oil prices.

"CNPC made aggressive steps to buy stakes in overseas oil field assets in the past few years when international oil prices were high," Zhang said. "Now it is considering divesting some of its low-profit oil fields to optimize resource allocation given the bearish outlook on global oil prices."

Chinese authorities have tried to encourage a mixed-ownership model in State-owned enterprises since a key Communist Party of China conference, which was held in November 2013.

The strategy aims to introduce private capital into State-dominated sectors, including energy and telecoms.

Sinopec, another State-owned oil giant, has made solid progress in developing a mixed-ownership structure.

The company announced in February that it would introduce private capital to its sales unit, and agreed in September to sell a stake of nearly 30 percent in its retail unit to 25 domestic and foreign investors including Tencent Holdings, Haier Group and Fosun Group for 107 billion yuan ($17.3 billion).

PetroChina said in a statement on May 12 that it plans to auction off its natural gas pipeline business, but so far it has not made any progress or named any potential buyers.

"CNPC is experiencing a transition period following a series of corruption cases, so it is not moving forward as fast as Sinopec," Zhang said.

CNPC's senior executives and various company officials have been under investigation since 2013 over corruption cases involving funds estimated at over 100 billion yuan, the Guangzhou-based Time Weekly reported in September.