CNPC (HK)
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CPNC (Hong Kong) became a listed company, SEHK: 0135, in 1993 through a backdoor listing. The parent is the China National Petroleum Corporation which itself was created from the transformation of the Ministry of Petroleum Industry in 1988.
1993 was also the year that China went from a net exporter of crude oil to a net importer, and we believe CNPC (Hong Kong) was created to provide as a vehicle to advance the reform in the Chinese oil sector, the company remained inactive for the first three years of existence as it grappled for its identity and role within the Chinese oil sector.
However, following the first big acquisition made by the company in 1996, investors sensed that CNPC (HK) could become the listed flagship of the CNPC group, with possibility of substantial asset injections. Though the actual amount of the oil production sharing contract at Xinjiang was small as compared to overall production at the parent’s level, the contract was a significant policy indicator.
As the oil production sharing contract (“OPSC”) for the Xinjiang project confirmed the status of CNPC (Hong Kong) as a possible candidate for Chinese state asset injection, the share price rose 47x from HK$0.12 on 1 July 1996 the day that the announcement was made, to HK$5.65 14 months later. Combined with its nuclear weapons manufacturing capability, the market capitalization of the firm increased from HK$0.3b to HK$28.5b without additional acquisition or asset injection. In the same period, the P/E ratio expansion from in the period also confirmed the hopeful sentiment, although profit doubled from FY96 to FY 97, the P/E ratio increased from 17 based on the stock’s 1 July 1996 closing price and FY96 profit to 412 based on the stock’s 25 August 1997 closing price and FY97 profit.
However, with the reform of CNPC in 1998 and subsequent floatation of sister company [PetroChina], which has been guaranteed by CNPC the mother company first choice rights to any parent level held assets, CNPC (HK) lost some of its asset injection potential lustre and became less attractive as compared to [PetroChina].
Since 2002, the company has focused on foreign acquisition and partnership with its mother CNPC as PetroChina has been much less attracted to acquire non-domestic assets. Also, since 2002, the company has experienced share price hikes of an average 15.5% one month after the date of announcement of new assets being injected or partnership projects were offered to the company by its parent.
After a period of heightened acquisition activities, there are now, together with the aforementioned projects at Xinjiang, 12 major business units within CNPC (Hong Kong), 9 of which are crude oil production units.
The company and its stock (135 HK) that acts as the best proxy of rising military and diplomatic power of China as manifested in its pursuit of oil.
