China National Petroleum Corp (CNPC), the country’s biggest oil and gas producer, plans to spin off its oilfield-services business, chairman Wang Yilin said in Houston on Tuesday.

CNPC was considering an

initial public offering of the oilfield services business as part of its efforts to streamline and become more efficient, Wang said in a speech at the IHS CERAWeek conference. He did not provide details on timing or how large a stake would be spun off.

The move comes amid President Xi Jinping’s overhaul of the state-owned sector as the world’s second-largest economy heads for its slowest growth in a quarter of a century. CNPC’s listed unit, PetroChina, has sold off pipeline assets in recent months while China Petroleum & Chemical Corp (Sinopec), Asia’s biggest refiner, agreed to sell a stake in its retail business in 2014.

With the severe downturn in the industry and low valuations, the timing is not good
Neil Beveridge, Sanford C Bernstein

“This CNPC drilling business spin-off is part of China’s state-owned enterprise reform blueprint,” Gordon Kwan, head of Asia oil and gas research at Nomura in Hong Hong, said. “State-run oil companies have been implementing cost-cutting reforms together with asset restructuring amid depressed energy prices.”

CNPC is following similar moves by its fellow state-run energy giants. Sinopec Oilfield Service was spun off from Sinopec in 2014, while CNOOC took China Oilfield Services public in 2002.

“This reform follows on from CNOOC and Sinopec, who have partially spun off their oil services divisions,” Neil Beveridge, a Hong Kong-based analyst at Sanford C Bernstein, said. “However, with the severe downturn in the industry and low valuations, the timing is not good.”

Crude has lost about half its value since the Opec oil-producers’ cartel decided not to cut output in an effort to defend market share amid global oversupply. Services, drilling and supply companies are bearing the brunt of the crash, having accounted for more than three quarters of the industry’s layoffs, according to consultant Graves & Co.

CNPC reported about 110 billion yuan (HK$130.7 billion) in revenue in 2014 from its construction engineering, engineering technology and equipment manufacturing divisions. That compares with total revenue of about 33 billion yuan at China Oilfield Services and almost 94 billion yuan at Sinopec Oilfield Services.

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