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Sinopec Beats PetroChina as Refining Profit Boosts Net

Sinopec Beats PetroChina as Refining Turnaround Boosts Profit
China Petroleum & Chemical Corp. (Sinopec) storage tanks stand behind a fence in the Tsing Yi area of Hong Kong, China. Photographer: Jerome Favre/Bloomberg

China Petroleum & Chemical Corp., Asia’s biggest refiner, posted a 24 percent increase in first-half net income after its refining business returned to profit, outperforming PetroChina Co.

Net income rose to 30.3 billion yuan ($4.95 billion), or 0.25 yuan a share, from 24.5 billion yuan, or 0.21 yuan, a year earlier, the Beijing-based company, known as Sinopec, said yesterday in a filing. The average of seven analyst estimates, compiled by Bloomberg, was a profit of 31 billion yuan.

China’s government shortened the window for retail fuel-price adjustments to 10 days from 22 days in March, allowing gasoline and diesel rates to more closely track Sinopec’s crude costs. The company processed almost double what PetroChina refined as better technology and modern refineries helped it make a 200 million yuan profit from the business, compared with a 18.5 billion yuan loss a year earlier.

“Sinopec’s sophisticated refining technologies and good cost control allowed it to stay afloat,” Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai, said by phone yesterday. “It will have a very good third quarter and second half as long as the government sticks to its promise of allowing domestic fuel prices to track international crude prices closely.”

PetroChina’s refining loss narrowed to 7.8 billion yuan from 23.3 billion yuan a year earlier. Asia’s largest company by market capitalization processed 67.5 million metric tons of oil, compared with Sinopec’s 115.4 million tons.

Sinopec expects its refining business to continue to improve in the second half of the year, Chairman Fu Chengyu said at a press briefing in Hong Kong today.

Shares Gain

Sinopec shares rose 1.9 percent to HK$5.83 at the close in Hong Kong. The stock has fallen 14 percent this year, compared with a 2.9 percent decline in the city’s benchmark Hang Seng index.

Sinopec has honed its refining business to increase efficiency and reduce costs, while PetroChina, which is more focused on oil and gas production, hasn’t given the business enough attention, UOB’s Shi said.

China’s price regulator cut retail fuel prices by about 800 yuan a ton between March and June. The last increase of about 100 yuan a ton in June may have been delayed on government concern higher energy prices will curb growth, Shi said.

Sales gained 5 percent to 1.42 trillion yuan, Sinopec said in the statement. Production rose 3.8 percent to 219 million barrels of oil equivalent. Overseas output climbed 5.8 percent to 11.7 million barrels during the period.

Asset Injection

Sinopec will complete buying assets that account for a quarter of its parent company’s oil production in September, Chairman Fu said today. The transaction with parent, China Petrochemical Corp., was announced earlier this year when the two formed a joint venture in March to replace dwindling reserves with oilfields in Kazakhstan, Colombia and Russia. Fu said the company will continue to seek more assets from the China Petrochemical.

Sinopec’s capital expenditure was 52 billion yuan in the first half, with 25 billion yuan of that spent on exploration and production.

It generated an operating cash flow of 32.9 billion yuan in the first six months, about 20 billion yuan less than what it had spent.

“Cash flow remains a significant problem for Sinopec which remains free cash flow negative,” Neil Beveridge, a Hong Kong-based oil and gas analyst at Sanford C. Bernstein, wrote in an e-mailed note today. “Unless there are more decisive steps taken to curb capital spending, then additional funding will be required to support growth plans.”

Diesel Demand

Both Sinopec and PetroChina reported weaker demand for diesel, closely associated with industrial production, as China faces the slowest growth since the global financial crisis in 2008.

China’s growth slowed to 7.5 percent in the second quarter, down from 7.7 percent in the first quarter of this year and 7.9 percent in the fourth quarter of 2012.

The refiner is the last among China’s three biggest oil companies to report half-year results. PetroChina posted a 5.6 percent increase in first-half profit on Aug. 22, and Cnooc Ltd., China’s biggest offshore oil and gas explorer, posted a 7.9 percent gain in profit on Aug. 20. Cnooc has no refining business.

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