PetroChina, the nation's largest oil and gas producer, on Thursday hinted its vast oil and natural gas pipeline network is likely to be spun off into an independent operation as part of Beijing's reforms to enhance efficiency.
Speaking after the firm posted a 62.7 per cent year-on-year fall in net profit for the year's first half to 25.4 billion yuan, president Wang Dongjin said: "The spin-off of oil and gas pipelines forms part of the key points of the industry's restructuring. The reform's ultimate goal is for the assets' operation to become independent and market-oriented."
Chairman Wang Yilin said while a spin-off would be in line with the trend of specialised asset management, since the nation's pipeline network has not been fully developed, it would better serve the industry's development for the reform to be executed in stages instead of a "big bang" approach.
PetroChina commands some 70 per cent of the nation's natural gas market and owns most of the pipelines. Gas distribution and logistics are its second biggest profit contributors after oil and gas production.
Beijing has completed an industry consultation but has yet to launch the reform.
PetroChina's profit drop in the first half was due to a 48 per cent year-on-year decline in average oil selling price to US$52.10 a barrel, which more than offset a 2.9 per cent increase in oil and gas output to 735.9 million barrels of oil equivalent.
After years of rapid rises, the energy giant has frozen its staff costs at just over 57 billion yuan in the first half compared to the year-earlier level, mainly through reduction of new hires and natural attrition.
It had also sold some assets in Algeria and Kazakhstan to bolster its cash flows amid the oil price slump, and expected to soon clinch an overseas assets swap deal to enhance efficiency of its asset portfolio, Wang Dongjin said.
PetroChina has further cut its capital expenditure budget for this year by just under 4 per cent, after slashing it in March by 12.7 per cent compared to last year's spending. Most of the latest cuts were on the exploration and production operation and gas logistics business.
It will seek to further cut spending in the next two years as it prepares for a prolonged period of low oil prices.
"Unlike in 1998 and 2008, the current industry downturn is not only affected by financial crises, but also fundamental oversupply," Wang Dongjin said.
But a lower value of the yuan would help, as the firm estimated that for every 1 per cent devaluation of the yuan against the greenback - assuming the greenback's value does not change against other currencies - it would result in 1 billion yuan of profit gain, he added.