Wednesday, March 28, 2012

Sinopec Q4 net profit falls 30%, largely from refining sector

China Petroleum and Chemical Corp (Sinopec), the country's second largest integrated oilcompany, posted a 30% fall in fourth-quarter net profit, missing forecasts, as big losses at its refining arm offset upstream gains.

Sinopec , Asia's largest refiner, saw heavy refining losses last year as increases in domestic prices for oil products failed to keep pace with strong rises in international crude prices, and analysts said its earnings would still largely hinge on international oil prices.

‘Sinopec is facing a lot of uncertainties this year. Its refining segment is still losing money due to high crude prices. Its petrochemical business is also deterioteriating due to rising cost and weaker demand,’ Yan Shi, analyst at UOB Kay Hian, said on Monday.

Sinopec's profitability may have improved slightly after the government hiked domestic petrol and diesel retail ceiling prices by 6-7 percent from March 20, and raised the threshold of windfall tax on crude oil production from $40 per barrel to $55 per barrel.

However, with crude oil prices being pushed up by ongoing tensions between Iran and the West over its disputed nuclear programme, Sinopec estimated in its annual report on Sunday that crude oil ‘will generally fluctuate in a high range’.

China's fuel price hikes often come smaller and later than required under its pricing formula due to inflation concerns, leaving refiners saddled with mounting losses.

Chinese oil firms make a profit on oil and gas production, fuel sales and chemical businesses but their refineries bear the brunt of losses caused by government price controls.

Sinopec's refining losses amounted to 37.6 billion yuan (€4.4 billion) in 2011 versus an operating profit of 14.9 billion yuan in 2010. Its upstream exploration and production division realised an operating profit of 71.2 billion yuan last year, up from 46.7 billion yuan in 2010, thanks to stronger crude oil prices.

Its oil and gas output edged up 1.6% year on year to 407.91 million barrels of oil equivalents (BOEs) in 2011, with crude production falling 1.9 percent and natural gas output rising 17.1 percent. For 2012, it plans to produce 326.52 million tonnes of crude oil and 582.6 billion cubic feet of natural gas.

The company processed 217 million tonnes of crude oil last year, up 3% year on year. Sinopec said it aims to process 225 million tonnes of crude this year.

Unlike PetroChina and CNOOC, which derive most of or all of their revenue from exploration and production, Sinopec is heavily focused on the downstream refining segment.

Sinopec is expected to receive a gradual injection of overseas producing assets from its parent Sinopec Group,and the move should benefit Sinopec Corp shareholders in the long run, analysts say.

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