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Will PetroChina (PTR) Spinoff Pipeline Business Worth $85B?

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Per recent media reports, Asian energy behemoth PetroChina Company Limited , a listed arm of China National Petroleum Corporation, is contemplating a spinoff of its extensive pipeline network. The network, with a total length of 48,200 miles, supplies oil and natural gas to the major cities of China. The assets are estimated to be worth 585 billion Yuan, which is equivalent to $85 billion.  

PetroChina is likely to announce an initial public offering for the resulting independent entity, which will leave it with a controlling stake. The spinoff is likely to take place by the end of this year but the exact timing remains undecided.

Back in 2015, the government of China had planned to spin off the pipeline assets of PetroChina and the leading oil refiner China Petroleum & Chemical Corporation or Sinopec to form a new entity. However, the plans failed to materialize.

Of late, PetroChina has been suffering from declining production and weak prices owing to which shareholders are inclined toward a spinoff. This, in turn, could boost dividends. The expected spinoff will lead to monetizing the pipeline assets and the company will be able to raise funds for the future expansions. It will enable the company to attract investors amid the plunging oil prices.

Zacks Rank & Key Picks

PetroChina is the biggest oil and gas pipeline operator in China with a 71% market share. The company operates in four segments: Exploration & Production, Natural Gas & Pipelines, Refining & Chemicals, and Marketing. Crude downturn and cuts in domestic natural gas supply prices to industrial customers have wiped out earnings and hit PetroChina hard. The company currently carries a Zacks Rank #5 (Strong Sell).

The company has underperformed the Zacks categorized Oil and Gas Integrated International industry in the last two years. During the aforesaid period, shares of PetroChina plummeted almost 30% while the broader industry declined 10%.

Some better-ranked players in the industry include Royal Dutch Shell PLC and Repsol, S.A. (REPYY - Free Report) . Both the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Shell is expected to post year-over-year growth of 109.4% in earnings in 2017.

Repsol reported positive average earnings surprise of 46.34% in the trailing four quarters.

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