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August 24, 2009

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Sinopec's record net earnings in Q2 mark major turnaround

SINOPEC, the world's second-largest oil refiner after Exxon Mobil, yesterday posted a record quarterly profit that widely exceeded expectations on higher fuel prices and falling crude oil prices, underscoring the turnaround in fortunes for China's once-struggling refiners.

Sinopec's net profit totalled 22 billion yuan (US$3.22 billion) for April-June, based on a Reuters' calculation.

Five analysts surveyed by Reuters had expected profit of 16.1 billion yuan. The numbers compare to a net profit of 1.62 billion yuan in April-June last year.

Two fuel price hikes in June, which were part of China's fuel pricing reforms, largely boosted second-quarter profit.

China's fuel price reform grants refiners a guaranteed profit margin if crude stays below US$80 per barrel.

"The refining and marketing operating profits are massive," said David Johnson, head of oil and gas research at Macquarie Securities in Hong Kong. "It says that the pricing system is working even better than people thought."

"They are in a very strong position to cope in the second half, even if oil was to hit US$80 a barrel. Oil would have to reach US$90-US$100 a barrel for them to be really hit."

The price of benchmark United States crude averaged close to US$60 a barrel in April-June, up from US$43 in the previous quarter but less than half the levels seen a year ago. It rose nearly US$1 toward US$74 a barrel to settle at a 10-month high last Friday.

The results for Sinopec contrast sharply with Western oil firms, including Exxon Mobil Corp and Royal Dutch Shell Plc, which have reported weaker second-quarter profits due to depressed refining margins and falling oil prices.

Sinopec's second-quarter earnings are a huge turnaround for the state-owned refiner, which was forced to take losses at its refining operations for most of last year as it was squeezed between low state-capped fuel prices and soaring crude prices.

"It is anticipated that the result of (the) first three quarters of 2009 will be over 50 percent higher compared with the same period of last year," the company said in a statement.

The refiner - which engineered China's largest overseas buyout deal with its US$7.24 billion bid for Swiss oil explorer Addax Petroleum Corp in June - earned 33.25 billion yuan for the first half compared with 7.68 billion yuan the same period last year.

Sinopec, officially known as China Petroleum and Chemical Corp, said in a separate statement that it would acquire six research institutes from a subsidiary of China Petrochemical Corp for 3.95 billion yuan to enhance its technical capabilities. Sinopec aims to process 97.1 million tons of crude in the second half of this year. The company, China's second-largest oil producer after PetroChina, plans to produce 21.4 million tons of crude oil and 4.96 billion cubic meters of natural gas in the second half.

Sinopec's Hong Kong-listed shares rose 19.2 percent in April-June, versus PetroChina's 39.2 percent rise and CNOOC's 25 percent gain.

CNOOC and PetroChina report earnings on Wednesday and Friday respectively.


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