We believe the roll-out of reforms will take place gradually instead of being a one-off measure. Reforms will be seen most notably in industries such as natural resources and alternative energy – areas that we already have positions- and benefits from such reforms can be manifold. For example, PetroChina (HKSE:00857), one of our key resources plays, has shown stronger commitment in improving profits this year. It has been reducing capital expenditure and shutting down inefficient refineries on the one hand, and undergoing an austerity program to reduce entertainment expenses on the other hand. In addition, it is also enhancing corporate governance, while introducing private capital and planning to sell selected pipeline assets which were previously unavailable to private investors. Finally, as we mentioned previously, PetroChina may benefit from the gas price reform, potential adjustments to tax, as well as supportive policies for shale gas development.
PetroChina is the largest integrated oil company in Asia by market capitalization. It has crude reserves of nearly 11 billion barrels and gas reserves of over 69,000 billion cubic feet. Its downstream assets consist of refining, and a service-station marketing network of over 20,000 stations. PetroChina is expected to benefit from growth in gas usage as China targets to diversify their energy reliance from coal. A new pricing mechanism of natural gas will help its prospects, as the government announced in June 2013 the lifting of the city-gate gas price. The SOE reform undergoing will also push the company to adopt measures for better cost control and returns for investors.
From Value Partners (Trades, Portfolio)’ Classic Fund Q3 2014 Commentary.
