(Yicai Global) Dec. 23 -- Kunlun Energy will sell all its pipeline assets to state-backed PipeChina for CNY40.9 billion (USD6.2 billion) to support the government's reform of the oil and gas industry to enhance its overall competitiveness.

PipeChina, short for China Oil and Gas Pipeline Network, will buy Kunlun Energy's 60 percent stake in PetroChina Beijing Gas Pipeline and its 75 percent stake in PetroChina Dalian LNG Terminal China in an all-cash equity transfer deal the pair signed yesterday, per the statements PetroChina and the Hong Kong-listed unit separately released the same day.

Kunlun Energy, a Hong Kong-listed unit of PetroChina, will hold no stake in the targets post-transaction, the statements added.

Kunlun Energy's stock [HKG:00135] traded 11.98 percent up at HKD7.20 (93 US cents) at midmorning. CNPC's shares [HKG:0857] were 1.28 percent up at HKD2.37.

Among the assets sold are four transmission lines Beijing Pipeline uses to supply natural gas to Beijing, which contributes greatly to CNPC's earnings, and the liquefied natural gas receiving station Dalian LNG owns in northeast China's port city of Dalian.

Cash Cow

Beijing Pipeline and Dalian LNG collectively contributed CNY1.6 billion in net profits to PetroChina last year and CNY1.1 billion to net profits in the first three quarters, per the statements.

CNPC posted CNY45.7 billion net profit last year and CNY10.1 billion in the first three quarters.

About half of the net proceeds will go to distribute dividend to Kunlun Energy shareholders, some 40 percent to develop the firm’s natural gas end-user sales, and the rest will repay debt and fund general operations, according to the statements.

The Chinese government formed PipeChina in December last year. It is responsible for investment in and construction of nationwide trunk oil and gas pipelines, gas storage and peak shaving facilities and unifying the country's transmission network of crude oil, refined oil and natural gas. Its pipeline assets consist of related assets transferred from big three energy corps of CNPC, China Petrochemical Corp, or Sinopec, and China National Offshore Oil Corp.

The big three energy companies and PipeChina reached a preliminary agreement on the divestiture and equity investment in July, per which CNPC is the largest shareholder with 29.9 percent stake, followed by Sinopec and its Sinopec Natural Gas unit at 14 percent and CNOOC at 2.9 percent. The divestment of Kunlun Energy's assets was not agreed until yesterday because of the existence of other interested parties involved.

LNG is natural gas condensed and cooled to a liquid form for more flexible transport than pipe-line based natural gas. Imported LNG arrives at China's coastal terminals after long-distance marine transport, then enters the pipeline network after regasification or is delivered to the downstream market via tanker vehicles.

Editor: Ben Armour, Xiao Yi