CNPC Said to Plan Spinoff of Assets With 140,000 Employees

  • Non-core units with about 10% of workforce said to be shed
  • Units include hospitals, hotels, utilities and schools

CNPC to Trim Assets on Weak Oil

China National Petroleum Corp. plans to spin off most non-energy assets -- a portfolio comprising roughly 10 percent of its workforce -- as low oil prices force the state-run behemoth to streamline, according to people with knowledge of the matter.

Under a plan detailed at an internal meeting in Beijing last month, CNPC would bundle businesses employing about 140,000, including hotels, hospitals, schools and utility companies, into regional units, said the people, who asked not to be identified because the information isn’t public. The reorganization, which would see the assets taken over by local governments or folded into joint ventures with outside investors, must be completed before 2019, the people said.

A Beijing-based spokesman for CNPC, which employed 1.46 million people as of last year, said Monday the company was unable to immediately comment. State-owned Assets Supervision and Administration Commission, which oversees government-owned companies, didn’t respond to a faxed request for comment.

Most employees covered by the plan work in unprofitable units that supply and service CNPC operations in remote areas of the country, the people said. The majority of the divisions to be sold off are wholly owned by CNPC and aren’t part of PetroChina Co., its main publicly listed unit that employs more than half a million people. 

Enhancing Efficiency

PetroChina gained 0.6 percent to close at HK$5.16 in Hong Kong, while the city’s benchmark Hang Seng Index rose 0.5 percent.

CNPC is the world’s sixth-biggest employer, according to data compiled by the World Economic Forum and Bloomberg. By comparison, Exxon Mobil Corp. -- the world’s largest oil company by market capitalization -- has 73,500 workers, according to data compiled by Bloomberg.

The reform offers “the potential to unlock value opportunities,” analysts at Goldman Sachs Group Inc. wrote in a research note Tuesday. “Divesting non-core or sub-par assets and adjusting labor size to long-term business opportunities may help enhance operating efficiency and potentially re-rate shares.”

‘Zombie’ Reforms

President Xi Jinping’s government has been pressuring state-owned enterprises to overhaul or shut unprofitable “zombie” companies as part of broader restructuring of the world’s second-largest economy. CNPC has come under additional pressure from a two-year slump in oil prices that’s forced it to sell assets and cut high-cost production.

While Brent crude has recovered from 12-year low in January, the global benchmark has averaged about $44 this year, less than half 2014 levels.

CNPC was recently compelled to sell pipeline assets to meet annual profit targets set by regulators. PetroChina’s net income in the first nine months of this year, fell 94 percent to 1.73 billion yuan ($253 million), even after incorporating the 24.5 billion yuan pipeline sales, the company said last month. Full-year results are expected to “decrease substantially” from last year.

Chairman Wang Yilin said in March that the company wouldn’t cut front-line oil-and-gas workers as it seeks to reduce costs.

“We are not like international oil companies where layoffs are the most convenient way to cut cost in the capitalist world,” Wang said during an interview. “We won’t have massive employees layoffs despite facing challenges from a low oil price.”

— With assistance by Keith Zhai, and Guo Aibing

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