Oil giants are streamlining operations, leaving more space for competitors
Whose business? Image: Sinopec |
Amidst a series of nationwide policy changes, China’s state-owned enterprises (SOEs) are undergoing a series of comprehensive reforms to increase return on existing projects and dispose of assets with low returns.
The reforms could excite competition from both domestic and foreign oilcos but also refocus the efforts of the nation's sprawling oil giants.
CNPC has now announced the sale of two major pipelines in China, following hot on the heels of Sinopec’s proposed sale of 30% of its marketing business to private investors. CNOOC and the State Grid Corp of China have also set up special committees to focus on the reforms in a bid to create more efficiency in the nation’s energy sector.
Historically, China’s SOEs have been first in line for state funding, creating a dependency on cheap credit. On average, debt at China’s 17,000 SOEs was 4.6 times earnings in 2012, compared to just 2.8 for private companies. While two thirds of bank lending currently goes to state-owned companies, they only contribute to one third of national output, according to a report from the Carnegie research centre.
However, the new reforms could see more money flowing to private energy companies, from both foreign and domestic investors alike. Shale, in particular, is likely to benefit as it has been classed as an ‘independent mineral resource’, thereby passing various stringent government regulations that cover oil and gas.
Shedding non-performing assets will also help China’s SOEs in the long run, creating more efficiencies and allowing firms to focus resources on more profitable enterprises. This in turn could see more energy directed at the majors' core businesses, such as refining and lubricants production.