China's CNPC Considering Oilfield Services IPO Amid Reform Drive

China National Petroleum Corp., the country’s biggest oil and gas producer, plans to spin off its oilfield-services business, according to Chairman Wang Yilin.

CNPC is considering an initial public offering of the oilfield services business as part of its efforts to streamline and become more efficient, Wang said in a speech at the IHS CERAWeek conference in Houston on Tuesday that was translated from Chinese. He didn’t provide details on timing or how large of a stake will be spun off.

The move comes amid President Xi Jinping’s overhaul of the country’s state-owned sector as the world’s second-largest economy heads for its slowest growth in a quarter-century. CNPC’s listed unit, PetroChina Co., has sold off pipeline assets in recent months while China Petroleum & Chemical Corp., Asia’s biggest refiner, agreed to sell a stake in its retail business in 2014.

“This CNPC drilling business spinoff is part of China’s state-owned enterprise reform blueprint,” Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Hong, said by e-mail. “State-run oil companies have been implementing cost-cutting reforms together with asset restructuring amid depressed energy prices.”

Industry Downturn
CNPC is following similar moves by its fellow state-run energy giants. Sinopec Oilfield Service Corp. was spun off from China Petroleum & Chemical, known as Sinopec, in 2014, while Cnooc Ltd. took China Oilfield Services Ltd. public in 2002. CNPC’s Beijing-based spokesman Qu Guangxue didn’t answer two calls to his office seeking further comment.

“This reform follows on from Cnooc and Sinopec, who have partially spun off their oil services divisions,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein. “However, with the severe downturn in the industry and low valuations, the timing is not good.”

Crude has lost about half its value since the Organization of Petroleum Exporting Countries decided not to cut output in an effort to defend market share amid a global oversupply. Services, drilling and supply companies are bearing the brunt of the crash, having accounted for more than three quarters of the industry’s layoffs, according to consultant Graves & Co.

CNPC reported about 110 billion yuan ($16.8 billion) in revenue in 2014 from its construction engineering, engineering technology and equipment manufacturing divisions, according to data compiled by Bloomberg. That compares with total revenue of about 33 billion at China Oilfield Services and almost 94 billion at Sinopec Oilfield Services.