OREANDA-NEWS. August 30, 2013. The mainland's state-backed oil and gas majors are tipped to post slightly lower to substantially better interim profits, as state fuel pricing reform helped PetroChina and China Petroleum & Chemical (Sinopec), while CNOOC was hurt by higher costs and lower oil price.

PetroChina, the country's largest oil and gas producer, is tipped to report on Thursday a 3 per cent year-on-year net profit gain to 63.9 billion yuan (HKD80.4 billion) for the first six months of the year, according to six analysts polled by Bloomberg.

Its main profit source, exploration and production, is expected to have fallen due to lower oil price and higher costs. The average first-half Brent benchmark crude oil price had eased 5.2 per cent year on year to USD107.80 a barrel, a Sanford C Bernstein research report said.

This was more than offset by a marked turnaround in its oil refining operation after the mainland reformed its fuel pricing system in late March so that retail prices are linked more closely to international prices. Previously, domestic adjustments would tend to lag overseas rises, causing periodic losses for refiners when crude prices rose sharply.

Still, due to slower economic growth and weaker downstream chemical demand, JP Morgan's analysts estimated the combined operating loss of PetroChina's refining and chemical operations at 4.75 billion yuan for the second quarter, matching the first quarter's loss of 4.74 billion yuan. They built in some fuel and chemical inventory write-downs and lower profit margins into their forecasts.

Despite rising losses on natural gas imports, they expect PetroChina's gas distribution segment to see higher profit in the first half due to lower pipeline depreciation expenses.

Like PetroChina, Sinopec has been helped by the fuel pricing reform. Next Sunday, it is expected to post a 36 per cent first-half year-on-year net profit jump to 31.6 billion yuan, based on the average estimate of seven analysts polled by Bloomberg.

Bernstein's analysts forecast a first-half refining earnings before interest and tax (ebit) of 4.07 billion yuan, a sharp turnaround from a loss of 18.5 billion yuan in the year-earlier period. This was mostly offset by a 37.5 per cent ebit fall from oil and gas production to 25.3 billion yuan.

Analysts expect the negative impact of an economic slowdown on the mainland to continue to be more than compensated by better energy pricing policies. "While slow growth is likely to persist in the second half, recently announced pricing reforms in oil and especially gas will help offset this," the Bernstein analysts said. Beijing has raised gas prices from July 10 and vowed to almost match depressed domestic prices with international levels by 2015.

Meanwhile, CNOOC, the dominant offshore oil and gas producer, is forecast by analysts to post a 5 per cent year-on-year drop in first-half net profit to 30.3 billion yuan when it reports tomorrow. Higher sales volumes will be more than offset by lower oil prices and higher costs.

Management is expected to face questions about operational integration with Canada's Nexen, which it acquired for USD15 billion in February.