“The comprehensive reform roadmap for the \"Big Three Oil Companies\" has emerged

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Source: Economic Reference News. In an era of low oil prices, as reforms to the oil and gas industry approach and state-owned enterprise reforms accelerate, the \"Big Three Oil Companies,\" which have been criticized for their monopolistic practices, are also taking action. Reporters from the Economic Reference News have learned that recently, CNPC, Sinopec, and CNOOC held their 2017 work conferences one after another, and a roadmap for comprehensive reform was unveiled, with integration, restructuring, and mixed-ownership reforms becoming the key focus areas. Industry experts believe that the oil and gas sector, which is in a \"deep winter,\" will experience significant changes in 2017. The upstream and midstream sectors will become more open to investment, with continued capital inflows. There are high expectations regarding mixed-ownership reforms, and private oil and gas companies will have opportunities for growth. At the same time, some of the businesses of the \"Big Three Oil Companies\" may be separated into separate entities or listed on the stock market, which will lead to an increase in their company valuations. The Central Economic Work Conference held in December 2016 stated that the reform of mixed-ownership structures is a key breakthrough in the reform of state-owned enterprises. In line with the requirements of improving governance, strengthening incentives, focusing on core business activities, and enhancing efficiency, substantive progress has been made in sectors such as electricity, petroleum, natural gas, railways, civil aviation, telecommunications, and the military industry. **The National Development and Reform Commission also stated that it will accelerate the implementation of mixed-ownership reforms in key sectors and industries that are crucial for the country’s economic stability, people’s livelihoods, and overall economic security, such as those in the electricity, petroleum, and natural gas industries. Plans for the first batch of pilot enterprises are currently under discussion. Reporters from the Economic Reference News have learned that the plan for reforming the oil and gas industry, which has been in development for nearly three years, is expected to be released in the first quarter of this year. It will further break down administrative monopolies, regulate natural monopolies, and open up areas where competition is possible. The most significant aspects of this reform are the deregulation of the upstream sector and the independence of the pipeline networks. Wang Yilin, chairman of CNPC, said that in 2017 the company earnestly implemented the central government’s decisions and guidelines regarding the deepening of reforms in state-owned enterprises as well as reforms in the petroleum and natural gas sector. It adopted a problem-oriented approach, started with pilot projects, focused on making key breakthroughs while advancing reforms in a coordinated manner, and introduced new reform measures at the appropriate time to fully stimulate and mobilize the enthusiasm of all parties involved. First, it is necessary to steadily advance the reform of the management system; second, to continuously push forward business integration and restructuring as well as reforms related to mixed-ownership models; third, to accelerate the reform of market-based mechanisms; fourth, to orderly advance reforms in the three types of systems; fifth, to solidly promote reforms in mining-related operations; sixth, to actively advance reforms in party-building systems and supervision mechanisms. Prior to this, CNPC had already piloted reforms aimed at granting greater operational autonomy in fields such as oil fields, refining and chemical production, and sales; it also carried out adjustments to the systems governing natural gas sales and pipeline operations, as well as reforms promoting the \"five aspects of autonomy\" in equipment manufacturing enterprises. On December 20 of last year, the \"Guiding Principles for the Market-oriented Reform of the Group Company\" and the \"Guiding Principles for the Reform of the Group Company’s Mixed-ownership Structure\" were reviewed and approved in principle. Since 2017, the pace of reform has accelerated further. Over the past ten days or so, the Southern and Northern branches of CNPC’s Natural Gas Sales division have been established successively, marking a substantial step forward in the reform of its natural gas sales management system. Sinopec, which fired the first shot in the reform of the oil and gas industry within the sales sector in 2014, has also stated its intention to deepen reforms across all areas. Wang Yupu, the chairman of the group, said that 2017 was an important year for implementing the 13th Five-Year Development Plan, as well as a year for furthering supply-side structural reforms. This mainly involves making every effort to advance the three key reform initiatives, promoting pilot projects for the reform of the three types of systems, steadily pushing forward mixed-ownership reform in line with the development of core business areas, and optimizing the functions of the headquarters. According to reporters from the Economic Reference News, in 2015 Sinopec completed the integration and restructuring of its oilfield services and oilfield machinery assets, and subsequently listed them. At the end of last year, substantive progress was made in the mixed-ownership reform of oil and gas pipelines, with Sichuan Gas East Transmission Pipeline Company raising capital by attracting China Life and CITIC Transportation. CNOOC is also carrying out intensive internal reforms, including reducing management levels and the number of legal entities, as well as advancing the reform and restructuring of its midstream refining and petrochemical industry. Yang Hua, chairman of CNOOC, emphasized that in 2017 efforts should be made to increase reserves and production in order to enhance the core competitiveness of the oil and gas business; efforts should be directed at developing a robust terminal marketing system to improve market management capabilities; efforts should be made to optimize and restructure overseas operations in order to boost the profitability of overseas assets; efforts should be pursued to implement reform and innovation measures in order to enhance the ability for continuous change; and efforts should be focused on building a strong risk management system to improve risk prevention capabilities. Wang Yu, an analyst at Anxin International, believes that after the wave of mergers and acquisitions in previous years, the ‘Big Three’ oil companies are now more cautious in their international expansion efforts, focusing mainly on conventional oil and gas projects. In 2017, it will be private oil companies and non-oil enterprises transitioning into the oil sector that play a key role in mergers and acquisitions. At the same time, some of the businesses of the \"Big Three Oil Companies\" may be separated for independent operation or listed. Although reforms are unlikely to lead to improved performance in the short term, their introduction will boost market confidence; meanwhile, the separation of high-quality business units will result in an increase in the company’s valuation (compiled and published by Shihua Yuan)