April 27, 2020

CHINA: Chinese Communist State Energy Company Sinopec In Talks To Buy Stake In Hin Leong's Singapore Oil Storage Terminal. JPMorgan Downgraded Cnooc, Sinopec, PetroChina From Overweight To Neutral.

Bloomberg News
January 6th, 2020, 8:16 PM PST 👈

Scott Darling, head of regional oil and gas research at JPMorgan, talks about the outlook for oil supply, prices and energy stocks. Oil buyers in Asia are increasingly wary that Iraq’s entanglement in the worsening dispute between the U.S. and Iran could disrupt shipments from one of their key Middle East suppliers. Darling speaks with Tom Mackenzie, David Ingles and Yvonne Man on "Bloomberg Markets: China Open."
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Reuters News
written by Chen Aizhu, Roslan Khasawneh
Wednesday April 22, 2020 👈

SINGAPORE - Chinese state energy company Sinopec is in early-stage talks with Hin Leong Trading Pte Ltd to buy a stake in an oil storage terminal that is partly owned by the Singapore trader, according to three sources with knowledge of the matter.

The sale could provide much needed cash for family-owned Hin Leong, one of Asia’s biggest independent traders.

The company owes a total of $3.85 billion to 23 banks and has applied to a Singapore court to delay its debt repayments, according to a Hin Leong presentation to lenders on April 14 contained in the court filing, which was reviewed by Reuters but has not been made public.

Sinopec, Asia’s largest refiner, was approached by Hin Leong earlier this month to look at investing in the Universal Terminal in Singapore, said one Beijing-based Sinopec official.

Hin Leong’s founder Lim Oon Kuin and his family own 41% of the terminal through Universal Group Holdings Pte Ltd. PetroChina holds 25% and Australian investment bank Macquarie the remaining 34%.

“Sinopec is interested, and is evaluating the quality and cost of the asset,” said the official, who declined to be named as the discussions are not public.

The three sources did not know the size of the stake Sinopec might be interested in buying, or the potential price.

Hin Leong and Sinopec did not respond to requests for comment.

A previous sale of a stake in the terminal in 2016 valued the whole terminal at more than $1.5 billion, industry sources said at the time.

Sinopec, which owns several storage facilities outside China - in Rotterdam, Antwerp and Fujairah - has long been looking for more storage sites to boost its global trading profile, the company official said.
For those of you who don't know, Rotterdam is in the Netherlands, Antwerp is in Belgium, and Fujairah is in the United Arab Emerites. (emphasis mine)
The state oil giant, however, would be cautious about any possible investment given growing internal scrutiny over spending after a plunge in oil prices, and is closely monitoring developments around Hin Leong’s debts, the official added.

“Sinopec is aware of the good asset quality of Universal Terminal, but the question is at what price and if the terminal can come clean of creditors’ debt claims,” said the official.

Of Hin Leong Group’s assets, which also include about 130 oil tankers, the stake in Universal Terminal is the most attractive to potential investors, trade sources said.

“The terminal is the prize,” said Tony Quinn, chief executive of terminals advisory group Tankbank International.

“One big advantage is that it has its own integrated marine infrastructure - like having your own little port authority within Singapore,” said Quinn.

He added the terminal has the only independently owned supertanker jetty on Jurong Island, which is the only access point to Singapore’s rock caverns, Southeast Asia’s first underground oil storage facility.

In an affidavit contained in the court filings reviewed by Reuters, Lim Oon Kuin, also known as O.K. Lim, said Hin Leong was in discussions with a large state-owned Chinese energy company over a potential strategic investment, without giving details.

A PetroChina executive said last week that Hin Leong had not approached his company about potentially raising its stake in the terminal.

PetroChina, in around 2006, became Hin Leong’s first partner, taking a 35% stake in the terminal while the Singapore trader held the remaining 65%.

PetroChina’s initial investment of S$750 million ($524 million) was recouped in less than 36 months, said a separate industry official with direct knowledge of PetroChina’s investment in the terminal.

The two companies sold a combined 34% to Macquarie in 2016 in a deal that was estimated by industry sources at about $500-$550 million.
Chinese Communist Party (CCP): What it means: May also refer to Communist Party of China (CPC), or in shorthand the Party, as distinct from the government or the country. The Party is the founding political party of the People’s Republic of China. While eight other political parties are legal in China, the CCP has a monopoly as the only governing party. CPC is used officially in China and by China’s media, whereas English-language media outside of Chinese conventionally use CCP. [source: Asia Media Centre]

The Motley Fool (a private financial and investing advice company)
written by Tim Phillips
Monday March 9, 2020 👈

With global stock markets swinging between big losses and gains on a daily basis, investors could be forgiven for missing one other big move – that of the oil price. Since the beginning of the year, the price of oil has plummeted by around 35% to just above US$41 per barrel. Last Friday alone, the oil price plunged by 10% in just a single day.

So, with that in mind, should investors be looking to pick up “cheap” oil & gas stocks in the current environment?

Although many analysts are saying the big Chinese giants of Sinopec (SEHK: 386), PetroChina Company Limited (SEHK: 857) and CNOOC Ltd (SEHK: 883) are oversold and attractive at their current levels, I strongly believe long-term investors should avoid them. Here are three reasons why.

1. Lower oil consumption in 2020

Unsurprisingly, oil consumption this year is set to be substantially lower than last year. This will be mainly down to China, the world’s second-largest economy as well as the second-largest oil consumer, effectively shutting down for a period of up to three weeks following the quarantine of Hubei province.

IHS Markit, a data provider, estimates that demand for oil is set to fall by 3.8 million barrels a day in the first quarter of this year – the biggest quarterly drop in demand ever seen.

This is obviously going to impact the three major Chinese oil giants in the short term. Sure, some of the companies specialise more in the downstream part of the process (think Sinopec) while others focus on upstream (such as PetroChina) but the impact of this fall in demand is going to hit all three companies hard in 2020.

2. Terrible long-term business environment

As if the short-term hit of the coronavirus isn’t enough for Sinopec, PetroChina and CNOOC to contend with, they also have to battle the reality that they exist in a dying industry.

Of course, the extent of how long the shift towards clean power and renewable energy will take is up for debate. However, one thing is certain – the Chinese government is determined to make China’s economy greener and cleaner.

How this is going to play out is merely a question of “when” and not “if”. In that scenario, for any long-term investor, the structural growth story of oil and gas is exceedingly negative.

With the rise of global campaigners, such as teenager Greta Thunberg, and philanthropists such as Bill Gates now focusing on the threat of climate change, governments and businesses worldwide are starting to wake up to the long-term threat of a reliance on fossil fuels.

That is going to spell trouble for the oil & gas industry further down the road as large, capital-intensive, multi-year projects are financed but with very little visibility on whether the demand will be there. The ongoing shift to renewable sources of power is one longer-term trend that these three companies can’t avoid.

3. State ownership and abysmal track records

Most investors will be aware that all three, Sinopec, PetroChina and CNOOC, are Chinese (Communist) state-owned enterprises (SOEs). Existing in a strategic sector of the Chinese economy, they’re viewed as important state assets in terms of the government’s aims for energy security.

Misalignment abounds here between management goals and minority shareholders. Why do I say this? Because even though these SOEs have ready access to credit, given their state ties, their valuations are cheap and they’re cheap for a reason.

According to calculations by JPMorgan Chase & Co, SOEs in China trade at an equity valuation gap of an astounding 40% compared to privately-owned companies. Taking a look at their track records in shareholder returns (over a 10-year window) will tell you the whole story (see below).
Amazingly, if you had held on to all three of the companies’ shares for the past decade, you would now be underwater in terms of the share price return.

Foolish takeaway

For those three reasons, the oil & gas sector in China is a particularly risky place to be in the stock market. Longer-term investors should take note and not fall into the “dividend trap” where certain SOEs are offering juicy yields. This can happen despite static or falling earnings.

Clearly that is not a sustainable situation for the dividend. And it all comes at a cost for shareholders in performance, which has been especially true for the three oil & gas giants.

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