Sinopec Acquires Oil Assets from Hubei Tianfa      

Due to the imprisonment of its boss Gong Jialong, Hubei Tianfa Group (SZ: 000670) that saw its glorious days in the past can not escape from the fate of disintegration. The dream of creating a private oil empire once cherished by Gong Jialong was smashed and the oil assets of the company have also been acquired by Sinopec Group through auction.
   On February 2nd, Sinopec Hubei Oil Company reached an agreement with the State-Owned Assets Supervision and Administration Commission of Jingzhou on the purchase of all the 64 filling stations in Tianfa Group. The total value of these filling stations is evaluated to be RMB140 million. 63 of them were purchased by Jingzhou Jiangjin Investment Development Co., Ltd. at an open auction on December 25th, 2007.

Acquisition of filling stations

Gong Jialong established Tianfa Group in 1988 with an investment of over RMB200 thousand. On February 13th, 2007 Gong Jialong, the "oil/gas king" who held the three oil business licenses, and operated two listed companies and more than 100 modern and large filling stations and three oil/gas depots with a volume of 10 000 tons each, was arrested for being suspected of "misappropriation of funds". The amount of funds involved is RMB3.1 billion.
   The sellable assets of Tianfa Group have therefore become a check worth RMB218.1 million. Its two listed companies have also changed hands. "The possibility for private enterprises to do a big deal of the oil business is very small. Tianfa Group has collapsed and others who want to involve in oil business are too hard to operate it," a private oil businessman sighed and said. Well-informed sources say that Tianfa Group has no refineries. Its selling prices of oil products are much higher than the purchase price. Nevertheless, the company is unable to get government subsidies like Sinopec Group. No wonder it has suffered loss.
   After the outbreak of the economic case in Tianfa Group, the State-Owned Assets Supervision and Administration Commission of Jingzhou immediately set up Jingzhou Jiangjin Investment Development Co., Ltd. to take over the assets of Tianfa Group.
   It is said that CNPC, Sinopec Group, CNOOC and SK of Korea are all interested in gaining the oil assets of Tianfa Group, especially for CNOOC.
   However, giant buyers such as CNPC, Sinopec Group and CNOOC did not show themselves at the auction held on December 11th, 2007. Jingzhou Jiangjin Investment Development Co., Ltd. got six of the eight items. The total transaction value of the eight items was RMB218 billion, but filling stations under Tianfa Group were not included. The 63 filling stations were open for sale at Jingzhou Property Exchange Center on December 25th, 2007. They were also bought by Jingzhou Jiangjin Investment Development Co., Ltd.
   "Six or seven years ago Sinopec intended to purchase filling stations under Tianfa Group," said Cui Xinsheng, the Secretary-General of China Petroleum International Industrial Investment Alliance. "Gong Jialong was there and Tianfa Group was flourishing at that time. Sinopec Group failed to achieve what it wished."
   Potential buyers such as CNOOC have quitted and Sinopec Group holds a dominant position in Hubei market. According to an insider, at the time of action Jingzhou State-Owned Assets Supervision and Administration Commission already decided to sell partial filling stations under Tianfa Group to Sinopec Group.

Withdrawal of CNOOC

"We dispatched survey teams to Jingzhou and made surveys to filling stations under Tianfa Group. We discovered that these filling stations could not meet our requirements and therefore decided to quit from the competition," CNOOC spokesman Liu Junshan expressed.
   CNOOC as the third major oil producer in China has spared no efforts in construction of a filling station network. Nevertheless, filling stations it owns are far less than what CNPC and Sinopec have.
   CNOCC therefore plans to construct 1 000 filling stations and matched oil depots in the Yangtze River Delta, the Pearl River Delta and the Bohai Sea Region in 2010 and form a complete oil product sales network.
   Filling stations under Tianfa Group are therefore greatly attractive to CNOOC. Tianfa Group has a total of 88 filling stations, twenty-seven of them are under construction, seven of them have been shut down and more than fifty of them are still in operation. If CNOOC gets hold of these filling stations, it can not only quickly complete its filling station network but also easily enter Hubei market. CNOOC organized survey teams and made two field surveys in Jingzhou. Survey results, however, proved that oil assets in Tianfa Group were not suitable to CNOCC and the company decided to withdraw.
   Besides, CNOOC still has no oil sources of its own. Its oil sources mainly depend on imports. Before completion of the refining project in Huizhou, CNOOC has to take a cautious attitude.