Chinese oil major, Sinopec is set to purchase upstream oil and gas assets from its parent company, while reducing unprofitable refining
China Petroleum & Chemical Corp (Sinopec Corporation) has announced plans to acquire the overseas oil and gas assets of parent company China Petrochemical Corp, or Sinopec Group, to increase its hydrocarbon reserve base and become a fully integrated oil major.
Under the newly-appointed CEO, Fu Chengyu, former China National Offshore Oil Corp (CNOOC) head, the state-owned giant will most likely undergo major restructuring, which could involve focusing resources on rapid foreign expansion.
The Hong Kong and Shanghai listed company aims to step-up international exploration and production of oil and gas, chemical output and the sale of petroleum products. Sinopec Group has also declared it will sell its remaining chemicals businesses within the next five years, assets which Credit Suisse values at around $20 billion.
Sinopec Corp is Asia's largest oil refiner, however, artificially low government-set crude prices have been a massive drag on its profitability. Refining uses up almost half of the company's capital - the state-owned giant recently announcing some CNY 36bn ($5.7bn) in refining losses during 2011.
The acquisitions from its parent company show Sinopec Corp gradually moving away from its core refining activities towards more upstream investments overseas. The group signed a $5.2 billion deal for a 30% stake in the Brazilian assets of Portuguese energy company Galp Energia last November and has entered into a further $2.5 billion deal with US-based Devon Energy Corp for a stake in five U.S. shale oil and gas fields. Since 2010, Sinopec Group has invested $14 billion in oil and gas deals across the U.S., Canada, Brazil and Australia.
Fellow oil major, PetroChina, has reportedly also shown interest in taking control of overseas assets, and has been steadily make deals abroad through its joint venture CNPC Exploration & Development Co.