Sinopec Posts 1Q Earnings Rise, Outperforming PetroChina

HONG KONG - China Petroleum & Chemical Corp., or Sinopec, Thursday posted a 25% increase in first-quarter net profit, outperforming larger rival PetroChina Co.

Strong domestic fuel consumption in China boosted profits at Beijing-based Sinopec, the largest refiner in Asia by capacity. Sinopec's extensive gasoline station network gives it an edge over PetroChina, which ranks second in Chinese service stations. Lower fuel costs also help Sinopec outrun PetroChina in terms of earnings, although part of the benefit is offset by lower contribution from exploration and production.

Sinopec's net profit for the three months ended March 31 rose to 16.7 billion yuan ($2.7 billion) from 13.4 billion yuan a year earlier. PetroChina, the largest listed Chinese oil company by capacity, reported a 8% decline in net profit to 36.0 billion yuan from 39.2 billion yuan for the period.

In the first three months this year, Sinopec refined 58.7 million metric tons, or 5.9% more than a year earlier. PetroChina processed 253.5 million barrels of oil, which was 1.4% decline than a year earlier.

Analysts said lower oil prices, coupled with a recent adjustment in refined product mechanism, will benefit Sinopec and PetroChina in the second quarter, even though the Chinese government is maintaining tight control over domestic fuel prices.

China cut domestic gasoline and diesel prices Thursday, the first time it has adjusted prices since reforming its fuel price system in March. Under China's new oil product pricing system, domestic fuel prices may be adjusted when the moving average of a basket of international crude oils over a period of 10 working days reflects a change of more than CNY50 a ton for diesel and gasoline prices.

"We continue to believe that the new refining mechanism reduces the regulatory risk of Sinopec's refining business and thus should lead to higher valuations for Sinopec over time," Citigroup analyst Graham Cunningham said Thursday.

Last month, Sinopec agreed to buy $1.5 billion of its parent's approximately $40 billion of overseas oil and gas assets as part of a plan to increase its global exploration and production.

The new assets--including projects in Kazakhstan, Colombia and Russia--would increase Sinopec's overseas proved reserves by 359% to 330.2 million barrels of oil equivalent from 72.0 million BOE as the end of last year. Its overseas production will increase by 171% to 58.7 million BOE in 2012 from 21.7 million BOE.

The acquisitions are aimed at putting Sinopec on par with integrated global energy majors such as Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell PLC.

To fund its acquisition of parent assets, Sinopec last week issued a $3.5 billion U.S. dollar bond--the largest dollar-denominated bond out of Asia excluding Japan in a decade. The bond issue came weeks after it raised $3.1 billion in February through a private placement, Asia's largest placement this year.

Copyright (c) 2012 Dow Jones & Company, Inc.


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