Sinopec Pursues Oilfield Service

State-owned China Petrochemical Corp., (or Sinopec Group) − the parent company of China Petroleum & Chemical Corporation (SNP - Analyst Report) or Sinopec Corp.) − has formed a new oilfield service unit to facilitate its upstream oil and gas operations in China and other countries. The international market of the new entity − Sinopec Oilfield Service Corp. − include North America, the Middle East, Africa, Central Asia and South East Asia.

With a total $12.2 billion (76.6 billion yuan) worth of fixed asset and 140,000 employees, this unit was launched at Beijing while restructuring the service departments of eight secondary oilfields such as Shengli, Zhongyuan and Jianghan. The company expects this oilfield service arm to collect $15.2 billion (95 billion yuan) of revenue in 2012. It has already gathered $14.2 billion worth of 480 contracts in 43 countries.

Recently, Sinopec Group created an engineering and construction arm − Sinopec Engineering (Group) Co Ltd − for its refining and petrochemical operation. This unit is expected to be listed by next year in Hong Kong. Sinopec Oilfield Service is also expected to be listed eventually, but the company did not give any specific timeline for it.

These days, Sinopec Group is busy in several exploration and production activities in China, while expanding its portfolio worldwide. Major Chinese energy companies are in the quest of expanding their international territories to meet the country’s increasing energy need. As the world's second-largest economy, China has a huge energy requirement.

Along with other oil giants like, China National Petroleum Corporation and China National Offshore Oil Corporation, the Sinopec group already holds a major position in the country’s oilfield services market. These three energy biggies of China occupy more than 80% of the market share. The balance is being shared between the country’s 1,200 oilfield services providers that comprise Anton Oilfield Services Group.

With the launch of the new oilfield service unit, the company will be able to gain an additional grip in the oilfield services market, enhancing its competitive edge in China and the international market.

Recently, Sinopec Corp. inked an agreement with the U.S. energy company ConocoPhillips (COP - Analyst Report) to conduct a joint unconventional oil and gas development study in the shale gas rich Qijiang block in the Sichuan basin. This effort of boosting commercial shale gas output in China will assist the country in meeting its targeted shale gas output of 6.5 billion cubic meters annually by 2015 and 100 billion cubic meters by 2020.

Sinopec Corp. holds a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation for the company.