Sinopec retail plans on track

Workers at a Sinopec oilfield in Puyang, Henan province. China's shale-gas production is expected to take off in the long run on expectations of technological advances. [Photo/China Daily]

China Petroleum & Chemical Corp (Sinopec) has shortlisted at least 37 bidding consortia for a stake of up to 30 percent in its fuel retail unit and plans to choose a winner by end-September, its chairman said on Monday.

"The reaction from investors, from the market, is better than we originally expected," Chairman Fu Chengyu told reporters at the company's first-half results briefing.

"We have shortlisted about 37 consortia with each consortium including multiple enterprises or funds," he said, adding that he expected to conclude the selection process by the end of the third quarter. The shortlisted bidders are submitting binding bids, Fu said.

Sinopec, Asia's largest refiner, is selling up to 30 percent of its marketing and distribution unit, which includes a wholesale business, more than 30,000 gas stations, over 23,000 convenience stores and oil-product pipelines and storage facilities.

Analysts have said the sale could raise about $20 billion and boost the value of the low-margin marketing business, bolster the group's finances and reinforce investment in exploration and production.

Fu said the investors are also expected to bring in expertise and ideas to improve nonfuel sales at its gas stations.

Unlike in Western markets, where these other businesses—convenience stores, fast food or car washes—can account for more than half of a station's profits, more than 99 percent of Sinopec's retail sales come from gas.

In the past few months, Sinopec has signed agreements with multiple Chinese companies to make more use of its gas stations and provide more services to consumers. The companies include delivery service SF Express Co Ltd, retailer Ruentex Group, e-commerce website Yhd and Taiping Insurance Group Co Ltd, Sinopec said.

The announcement of the partnership was apparently aimed at drumming up the growth potential of Sinopec's retail business ahead of a sale, analysts said.

The marketing and distribution business has been a relatively stable and major source of profit for the group, but the division's earnings have been declining in recent years because of slowing fuel demand growth and rising costs.

But first-half operating profit of the division rose 11.5 percent year-on-year to 18.8 billion yuan ($3.05 billion), Sinopec said in its interim results last Friday.

Fu also said that China's shale-gas production will take off in the long run because of advances in technology that could cut drilling costs to $50 million per well from $80 million within three to five years.

Output of Sinopec's Fuling shale-gas field in the southwestern province of Sichuan—China's first major shale-gas project—reached 3.2 million cubic meters per day at the end of June, Sinopec said.

The Fuling field will reach an annual production capacity of 5 billion cu m by the end of next year, and that should double by the end of 2017, Fu said.