PetroChina Company Limited (PTR) is planning to sell its stake in a gas pipeline operator to its subsidiary Kunlun Energy Co. for approximately $2.9 billion. The decision has been taken by PetroChina to make fuel distribution the main business of Kunlun Energy.
PetroChina acquired a majority stake of Kunlunin August 2008 to turn it into a gas distributor. PetroChina’s initiatives toward natural gas is notable as its natural gas business is a potentially lucrative growth area that is expected to witness strong growth in the coming years as China transits from coal to natural gas. At present, two-thirds of China’s electricity is generated by coal-fired power plants, which emit greenhouse gases that cause pollution.
We believe that continued demand growth in China(expected to outperform developed countries in the next few years), together 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 both downstream and natural gas sectors.
In line with its strategy to fuel downstream businesses, PetroChina is reorganizing its assets base across its subsidiaries. Its current marketing operations include a distribution network of 17,262 retail sites, 23 regional sales and distribution branch companies, and one lubricants branch company.
Our near-term concerns include high-priced gas imports in the face of low domestic gas sale prices and uncertainty pertaining to the impact of the newly rolled out national resources tax. Strong competition from peers such as CNOOC Ltd. (CEO) and Sinopec (SNP) is also a threat to PetroChina. A Zacks #3 Rank for the company retains, which translates into a short-term Hold recommendation.