China-based integrated oil firm PetroChina Company (PTR) announced the sale of its wholly owned subsidiary PetroChina Guangxi Oil Storage Limited to the parent company China National Petroleum Corporation (“CNPC”). PetroChina will receive a total consideration of 2.11 billion yuan or $319.7 million in cash.
Per the terms of the agreement, PetroChina will transfer 100% equity of the Guangxi unit for the consideration, which is based on the net asset value of the transferred company.
Apart from oil storage, the Qinzhou city unit is also involved in pipeline transmission. The division currently has a storage capacity of 4,000,000 cubic meters of oil.
The sale is in line with PetroChina’s restructuring strategies intended to redesign the asset portfolio of the company, increase the fund utilization rate and maximize returns, thereby leading to higher profitability. The company aims to utilize the cash received to repay bank loans and enhance its international oil product business.
Headquartered in Beijing, CNPC currently holds a majority stake of 86.20% in PetroChina, which is engaged in the exploration, production, and sale of crude oil and natural gas. PetroChina operates in four segments: Exploration & Production, Natural Gas & Pipelines, Refining & Chemicals and Marketing that accounted for a respective 68%, 12%, 11%, and 9% of its fiscal 2009 operating profit.
We believe that continued demand growth in China along with the recent turnaround in commodity prices will fuel PetroChina’s medium-term earnings outlook. Additionally, we expect the company to benefit from attractive growth prospects in the downstream and natural gas sectors.
However, in our view, the sluggish oil production growth prospects, heavy exposure to significantly mature producing areas, high-priced gas imports in the face of low domestic gas sale prices and competition from peers such as Sasol Ltd. (SSL) and Chevron Corporation (CVX) will continue to weigh on the stock.
Considering the aforesaid factors, we are maintaining our Neutral recommendation on the shares.
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