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Sinopec Quarterly Profit Beats Estimate on Refining Earnings

Sinopec Third-Quarter Profit Falls 9.4 Percent, Beats Estimates
Net Income dropped to 18.3 billion yuan ($2.93 billion) or 0.199 yuan a share, from 20.2 billion yuan or 0.226 yuan a share a year ago, China Petroleum & Chemical Corp. said in a statement to the Shanghai stock exchange today. Photographer: Jerome Favre/Bloomberg

China Petroleum & Chemical Corp., Asia’s biggest refiner, posted better-than-expected third quarter profit after two increases in state-controlled retail fuel prices and improved petrochemical sales helped earnings.

Net income fell 9.4 percent to 18.3 billion yuan ($2.93 billion) in the three months ended Sept. 30, from 20.2 billion yuan a year ago, the company known as Sinopec said yesterday in a statement. That beat the 14.19 billion-yuan median estimate of nine analysts surveyed by Bloomberg.

China, which controls retail fuel prices to contain inflation, raised prices in August and September, after inflation dropped to 1.9 percent in September from as high as 4.5 percent in January. Sinopec, forced to sell fuel below cost under the pricing system, posted its lowest half-yearly profit since 2008 in the six months ended June 30.

“Sinopec should be very close to break even in the refining sector this quarter, and petrochemical margins should also have seen apparent improvement as demand rebounds,” said Shi Yan, a Shanghai-based energy analyst at UOB-Kay Hian Ltd. “The fourth quarter should provide Sinopec a chance to see the refining sector return to profit, especially if the government continues to push for a more flexible retail fuel pricing mechanism.”

Sinopec shares gained 3.4 percent to HK$8.29 as of 9:47 a.m. in Hong Kong trading, while the benchmark Hang Seng index fell 0.4 percent. The stock has gained 11 percent in the past year, compared with a 7.5 percent increase in the Hang Seng.

Improved Operations

“Operations in the third quarter improved thanks to our active adjustments in production and sales,” the state-owned refiner said in its statement to the Shanghai stock exchange, without elaborating. “Prices of chemical products also rebounded in the third quarter after a big decline in the second quarter.”

Crude production rose 2.3 percent in the first nine months to 245 million barrels and natural gas output increased 15 percent to 438 billion cubic feet (12.4 billion cubic meters), according to the statement. Realized crude prices rose 2.5 percent to $100.69 a barrel, while realized natural gas prices rose 5.5 percent to $5.77 per thousand cubic feet, it said. Brent crude, the benchmark for more than half of the world’s oil, averaged $112.20 a barrel in the first nine months, according to data compiled by Bloomberg.

The eastern Chinese city of Ningbo said yesterday it would halt work on a Sinopec-owned facility producing the toxic chemical paraxylene after residents protested. The facility is part of a Sinopec refining complex, designed to produce 15 million tons of refined oil and 1.2 million tons of ethylene annually and which will cost about 55.87 billion yuan, Xinhua reported yesterday.

Lv Dapeng, a Beijing-based spokesman for Sinopec and its parent China Petrochemical Corp., did not answer two calls to his office seeking comment today.

Overseas Production

Sinopec’s overseas oil output increased 27 percent in the first nine months to 16.05 million barrels, accounting for 6.5 percent of total oil production.

By comparison, Cnooc Ltd., China’s biggest offshore energy explorer, saw 18 percent of crude output generated overseas in the first nine months, according to a calculation by Bloomberg.

PetroChina Co., the listed unit of China’s biggest energy company, produced 62.5 million barrels of oil equivalent from overseas projects in the first half, accounting for 9.4 percent of output, according to its half-yearly statement on Aug. 23, which didn’t list its overseas oil and gas production separately. PetroChina will report third-quarter earnings on Oct. 30.

Sinopec’s “share of overseas production is much smaller than peers PetroChina and Cnooc,” said Neil Beveridge, a Hong Kong-based energy analyst at Sanford C. Bernstein & Co. “It could either go out and buy assets, or look for an asset injection from its parent company.”

Cnooc in July made China’s largest foreign takeover attempt, bidding $15.1 billion bid for Canada’s Nexen Inc. Canada extended regulatory scrutiny of the acquisition by 30 days on Oct. 11. The Nexen deal hinges in part on China’s willingness to approve Canadian investments there, a person with knowledge of the matter said last week.

Nine Years of Reserves

Sinopec’s reserves of crude oil declined from 3.3 billion barrels in 2007 to 2.8 billion barrels at the end of last year, enough for nine years of production at 2011 levels, according to data compiled by Bloomberg. Its parent, China Petrochemical, said in January that it aims to produce overseas 50 million metric tons of crude a year by 2015. Last year, foreign production was 22.9 million tons.

China Petrochemical bought Addax Petroleum Corp. in 2009, adding reserves in Nigeria, Cameroon and Gabon. Addax plans to produce 10 million tons of crude annually by 2015 and 25 million tons a year by 2020, China Petrochemical said in January.

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