Industry Trend Analysis - Sinopec To Shed Non-Core Assets In Favour Of Downstream Expansion, Gas - FEB 2018

BMI View: China's slower economic expansion, rising energy efficiency in key sectors, shifting consumption towards natural gas and renewables energy and ample crude supply globally will reduce t he need for China's state-owned oil and gas producers to hold onto mature, underperforming overseas oil and gas assets for energy security, paving the way for further divestments over the coming quarters.

China's second largest oil and gas producer Sinopec will accelerate divestment of some of its higher-cost, underperforming overseas upstream assets, as it seeks to boost profits and operational efficiency, amid weakness in global oil prices and slowing consumption growth at home. This is in stark contrast to Sinopec's moves in previous years, when in order to build out upstream scale and to comply with Beijing's call to contribute to improving national energy security, it embarked on an aggressive acquisition spree overseas. This saw the company lock-down energy assets in several high-growth markets (albeit markets ladened with substantial security and operational risks) to meet future demand from a surging domestic economy. Financed by low-cost loans from local banks, Sinopec made 29 acquisitions worth USD30.8bn between 2009 and 2013 across Latin America, Africa and North America.

However, the recent decline in global oil prices, coupled with a considerable slowdown in the pace of China's economic growth and rising operational challenges in several key markets have begun to drag on the profitability of some of Sinopec's overseas projects, leading Sinopec to consider divestments:

  • Divestment A Relatively Rare Phenomenon
    Sinopec - Announced Value Of Acquisition & Divestment, USDmn (LHS) & Deal Count, units (RHS)
    * Sinopec sold 70.0% stake in Sinopec International Petroleum Exploration and Production Corp at an undisclosed fee. Source: Bloomberg, BMI

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