China Petroleum & Chemical Corp, Asia’s biggest refiner, posted a two per cent gain in profit last year, missing estimates, as government price controls led to losses in making gasoline and diesel.
Net income rose to 73.2 billion yuan ($11.6 billion) from 71.8 billion yuan in 2010, the company known as Sinopec said in a statement to the Hong Kong stock exchange today. That compares with a 74.4 billion-yuan mean estimate in a survey of 18 analysts compiled by Bloomberg. China, which controls fuel rates to curb inflation, raised prices by as much as 7.1 per cent last year, lagging the 20 per cent surge in New York crude futures. Fu Chengyu, who became chairman of Sinopec’s parent in April, led the group to bid for $9.3 billion in foreign oil and gas assets to diversify from unprofitable fuel making.
“Everybody knows about the refining losses, and there is nothing Sinopec can do,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd in Hong Kong. “Things will get better, as we expect China to raise fuel prices at least four times this year, and Sinopec can achieve better cost-saving through economies of scale in refining.”
The government has increased fuel rates twice so far this year, after consumer prices rose 3.2 per cent in February from a year earlier, the least since June 2010. China delayed price adjustments last year to cushion the impact on inflation, which exceeded its four per cent annual target every month.
Fourth-quarter profit
The Q4 profit slumped 23 per cent to 11.8 billion yuan, according to calculations made by subtracting nine-month earnings from the 2011 net income. That missed the 12.4 billion-yuan mean estimate of seven analysts in a Bloomberg survey.
Sinopec didn’t provide fourth-quarter data in its earnings statement. Huang Wensheng, the company’s Beijing-based spokesman, declined to comment on the derived figure.
Crude futures averaged $95.10 a barrel in New York last year, compared with $79.56 in 2010. The refiner said it aims to cut crude procurement costs and reduce storage and transportation expenses this year.
Refining Margins
The operational loss for refining reached 37.6 billion yuan in 2011, compared with a profit of 14.9 billion yuan in 2010, Sinopec said. The cost of buying crude rose 38 percent to 839 billion yuan last year, according to the earnings statement.
“The refining margin this year will still be basically close to zero, or slightly negative,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “The key question for Sinopec this year is whether the pricing reform will materialize under the high oil prices.”
The government considers changing fuel tariffs when the 22- day moving average of Brent, Dubai and Cinta crudes increases more than 4 percent from the last revision under a pricing mechanism introduced in December 2008.
Sinopec increased oil processing by 3 percent last year to 217.4 million metric tons. The company expects to refine 225 million tons of crude this year, according to the statement.
Production of crude and gas gained 1.6 percent to 407.9 million barrels of oil equivalent, Sinopec said. Crude output fell 1.9 percent to 321.7 million barrels, while natural gas production jumped 17 percent to 517.1 billion cubic feet.
Crude, Gas Production
Sinopec, planning to increase crude output to 326.5 million barrels this year, will boost production at mature oilfields and ramp up operations in western China. It will also develop tight oil reserves by sinking horizontal wells, Sinopec said.
The company aims to increase gas production to 582.6 billion cubic feet this year, and plans to develop its capacity to extract gas from shale formations, according to the statement.
Production of shale gas will be the main driver of Sinopec’s future growth, Chairman Fu said on Aug. 30.
China Petrochemical Corp., the parent, said in January it has started exploring for shale gas in Anhui province with China National Offshore Oil Corp., the state-controlled parent of Cnooc Ltd. (883) Unit Sinopec and Henan Provincial Coal Seam Gas Development and Utilization Co. won the rights to explore two areas in the country’s first shale-gas auction in June last year.
Sinopec Group will increase spending on shale-gas exploration and aims to account for almost a third of the country’s 2015 target for extracting the fuel from sedimentary rock, the official China Daily reported on March 21, citing a company official.
Overseas Oil
China, estimated by the U.S. Energy Information Administration to hold the world’s largest reserves of shale gas, aims to produce 6.5 billion cubic meters of shale gas annually by 2015 and ramp up output to between 60 billion and 100 billion by the end of the decade.
Sinopec plans to produce 306.6 million barrels of crude domestically and 19.9 million barrels overseas, according to its statement. Crude output from fields outside China fell 29 percent to 18.4 million barrels last year, the company said.
The refiner plans to acquire overseas oil and gas assets owned by its parent when appropriate, Sinopec said on March 14. In 2010, its parent paid $7.1 billion for a 40 percent stake in Repsol YPF SA’s Brazilian unit, China’s largest energy acquisition that year.
Sinopec itself agreed in November to pay $5.2 billion for a stake in a unit of Galp Energia SGPS SA (GALP) to explore for oil off Brazil’s coast, China’s largest overseas acquisition in 2011.
Bids by the group for global assets, including the purchase of Canadian oil and gas explorer Daylight Energy Ltd., exceeded the combined $6 billion of overseas investment by domestic rivals China National Petroleum Corp. and Cnooc last year, according to data compiled by Bloomberg.
