Sinopec's Oil Refining Overcomes Continued Upstream Losses



(Bloomberg) -- China Petroleum & Chemical Corp., the world’s biggest refiner, said third-quarter profit advanced 13 percent as earnings from refining offset upstream and impairment losses.

Net income at the state-owned energy producer increased to 11.5 billion yuan ($1.7 billion) in the three months to Sept. 30, the Beijing-based company known as Sinopec said in a statement to the Hong Kong stock exchange Monday. That missed a JPMorgan Chase & Co. estimate of 12.1 billion yuan. Revenue rose 19 percent to 579.1 billion yuan.

Sinopec’s refining operations have helped it during the oil price crash because costs for converting crude into fuels such as diesel and gasoline have fallen. Oil averaged about 11 percent higher in the third quarter than a year ago at near $52 a barrel, which helpd the state-backed giant shrink losses at its aging, high-cost crude fields while focusing on natural gas to meet growing domestic demand.

“Sinopec’s upstream losses narrowed as oil prices slowly moved up,” said Anna Yu, a Hong Kong-based analyst at ICBC International Research Ltd. “Sinopec’s refining business will continue to perform well in the fourth quarter and may register extra inventory gains if oil prices move up.”

Sinopec booked a 3 billion yuan impairment in the third quarter, the company said in the statement, without providing details. Citigroup Inc. Hong Kong-based analyst Nelson Wang said in an Oct. 18 research note that the company may report a writedown on Beijing Yanshan and Zhongyuan refining units, as well as its coal-to-chemical project in Ningdong.

Details on the first nine months of the year from the statement include:

Crude oil output fell about 4 percent from a year ago to 220.21 million barrels, while natural gas production surged 21 percent to 674.2 billion cubic feet. Refining throughput rose 1.3 percent to 177.5 million tons. Capital expenditures reached 29.1 billion yuan, with 10.9 billion yuan going to exploration and production and 8.5 billion yuan to refining.

The company doesn’t report third-quarter operational performance figures. Bloomberg calculations show:

Operating profit from refining for the three-month period rose 48 percent year-on-year to 14.46 billion yuan. Losses from exploration and production narrowed to about 8.2 billion yuan.

Sinopec shares advanced 1.2 percent to HK$5.72 before the earnings statement, compared with a 0.4 percent slide in the city’s benchmark Hang Seng Index.

Cnooc Ltd., the country’s biggest offshore explorer, last week reported a 17 percent increase in third-quarter oil and gas sales as higher crude prices countered sliding output.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net Abhay Singh.



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