China Oil & Gas Pipeline Network (PipeChina), the company Beijing created in December 2019 to combine the infrastructure assets of the state-owned energy majors, has signed a deal to buy a large natural gas pipeline owned by a subsidiary of Sinopec, in the first transaction of the plan to buy up energy infrastructure assets.
The deal is worth US$457 million (3.2 billion Chinese yuan) and is expected to be completed by September 30, 2020, Sinopec Kantons Holdings Limited said in a filing to the Hong Kong Stock Exchange.
Under the agreement, PipeChina is buying 100 percent in Sinopec Kantons' natural gas transmission business and its core asset, the Yulin-Jinan Pipeline which is 900 kilometers (560 miles) long.
PipeChina is paying a 43-percent premium over the net asset value of the Yulin-Jinan Pipeline, which is a good sign that other assets would also be bought at a premium, analysts told South China Morning Post.
"It is likely to be a shot in the arm for all pipeline spin-off plays, as it allays market worries about value-destructive spin-off offers," Daiwa Capital Markets analyst Dennis Ip said in a note, carried by South China Morning Post.
At the end of last year, China launched the long-mooted state oil and gas pipeline group with the purpose to combine the infrastructure assets of the state-owned energy majors into one huge midstream group, which analysts say could be worth between US$80 billion and US$105 billion.
The new company, PipeChina, is part of the country's efforts to allow its energy companies to focus on boosting exploration and production. Combining China's pipeline infrastructure into one firm and opening access to this infrastructure to foreign and private producers would help the state oil and gas firms to focus on exploration at a time when China aims to increase its domestic production.
By Charles Kennedy for Oilprice.com
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