Sinopec Profit Beats Estimates
OREANDA-NEWS. August 31, 2011. China Petroleum & Chemical Corp. (386), Asia’s biggest refiner, posted record half-year profit that beat analysts’ estimates after it kept the cost of crude-oil purchases in check while increasing fuel production.
Net income rose 12 percent to 41.17 billion yuan (USD 6.5 billion), the company known as Sinopec said yesterday. That surpassed the 36.02 billion-yuan median estimate in a survey of six analysts and PetroChina Co.’s 1 percent gain. Shares rose.
State-controlled Sinopec’s losses from turning crude into gasoline and diesel were about half of PetroChina’s even as it processed 62 percent more oil than its rival. Earnings from refining may improve in the second half after crude fell 12 percent from its peak in April. Analysts expect inflation to ease, allowing the government room to increase fuel prices.
“They did a really nice job in controlling refining losses,” said Lawrence Lau, an analyst with Bank of China Ltd. in Hong Kong. “With relatively lower crude oil prices, Sinopec should do better in the second half.”
Sinopec posted a loss of 12.2 billion yuan from processing 108.5 million metric tons, or about 800 million barrels, in the first half. PetroChina said on Aug. 25 it incurred a 23.4 billion-yuan loss from refining 491 million barrels.
Brent crude in London, a benchmark grade for China, rose above USD 120 a barrel in April as political turmoil in the Middle East and North Africa disrupted supplies, from about USD 95 at the end of December. Prices have since fallen to about USD111 on concerns that a global recession will cut demand.
Price Controls
Sinopec rose 4.8 percent to HKD 7.36 as of 10:47 a.m. in Hong Kong, while PetroChina gained 3.1 percent and the benchmark Hang Seng Index (HSI) advanced 1.4 percent. The stock has climbed 19 percent this year, compared with the 4.2 percent drop in the benchmark. PetroChina has risen 10 percent in the same period.
China, which controls fuel prices to curb inflation, raised tariffs by about 10 percent in the first half as Brent crude surged to the highest in more than two years.
The country’s inflation accelerated to the fastest pace in three years in July. Economists forecast the rate to ease to 5 percent in the third quarter from 5.7 percent in the second.
Margins from processing each barrel of crude into fuels slumped 67 percent from a year to USD 1.54 in the first half, according to presentation slides on Sinopec’s website. Refining and marketing accounted for 62 percent of its operating income last year, compared with 19 percent for PetroChina.
Cnooc, Exxon, Shell
Profit growth at Sinopec and PetroChina lagged behind the 51 percent gain at Cnooc, which relies on oil and gas production for 99 percent of its revenue. Earnings gains at China’s three biggest oil companies trailed global rivals Exxon Mobil Corp. and Royal Dutch Shell Plc (RDSA), which aren’t restrained by government controls on fuel prices.
Exxon’s first-half profit grew 54 percent, while Shell posted a 77-percent increase, the companies said last month.
“By optimizing the procurement and transportation of crude oil, we reduced the costs and improved our profitability,” Sinopec said in yesterday’s earnings statement. The refiner said it would “take measures to reduce costs” in the second half even as it expects “that international crude oil prices will fluctuate within a wider range.”
Sinopec plans to issue as much as 50 billion yuan in corporate and convertible bonds to supplement working capital, cut financing costs and repay maturing debt, the refiner said in a separate statement.
Crude-Oil Costs
Sinopec increased oil processing by 5 percent in the first half to help meet demand in the world’s fastest-growing major economy, while the cost of purchasing crude rose 38 percent to 406 billion yuan, according to the statement.
“Lower-than-expected crude purchase costs were the ultimate driver of earnings,” said Laban Yu, the head of oil and gas research at Jefferies Hong Kong Ltd. “We had estimated crude costs of USD106 a barrel. Turns out they were able to buy crude for USD99 a barrel.”
Net income for the period surpassed the previous record of 36.38 billion yuan in the first half of 2007. Sinopec restated its profit for the first six months of 2010 to 36.80 billion yuan. The Beijing-based company didn’t provide quarterly figures.
Revenue rose 32 percent to 1.22 trillion yuan because of higher fuel prices and sales volume, the company said.
Domestic oil-product sales jumped 10 percent to 75.1 million tons, and Sinopec plans to process 114 million tons of crude in the second half. The company’s chemicals segment posted a profit of 16.3 billion yuan, up 96 percent.
Energy Exploration
Earnings were also boosted by a 26 percent increase in operating profit from exploration and production. The realized price for the crude it sold to customers surged 34 percent while that for natural gas jumped 24 percent.
Gas output increased 27 percent to 254 billion cubic feet, while oil production fell 5.4 percent to 156 million barrels after overseas output dropped “sharply” because of maintenance at its Angolan field, the company said in the statement.
“The better-than-expected results blew away market consensus estimates because of the exceptional petrochemical profit growth and the lower-than-expected refining losses,” said Gordon Kwan, the Hong Kong-based head of regional energy research at Mirae Asset Securities Ltd. “Sinopec also enjoys lower cost for refining due to its larger processing volume,” which give it “superior economies of scale.”
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