Sinopec Profit Precedes Li’s Plan to Reduce State Role
PetroChina Co. (857) and China Petroleum (386) & Chemical Corp., the country’s largest energy companies, increased profit in the third quarter as a new policy helped them raise fuel prices, foreshadowing Premier Li Keqiang’s plan to reduce state intervention in the economy.
China Petroleum, known as Sinopec, reported a 20 percent jump in net income to 22 billion yuan ($3.6 billion), while PetroChina posted a 19 percent gain in profit to 29.8 billion yuan yesterday. The government in March mandated that domestic prices track increasing costs on global markets more closely to provide refiners reasonable margins.
The move is a precursor to Li’s pledge to cut the state’s role, change financial and fiscal systems and overhaul land and household registration rules at a Communist Party meeting next month in a bid to sustain growth. China has traditionally used its big three oil companies, of which PetroChina is the largest, to control domestic fuel prices and secure energy supplies from overseas.
“The proposed reforms in terms of opening oil and gas sectors wider to private investment in China will benefit big state-owned companies in the long term,” Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai, said by phone yesterday. “Competition will force the giant firms to improve their efficiency in order to survive in the market.”
PetroChina, the country’s biggest oil and gas producer, reduced refining losses by 17 billion yuan in the first nine months, compared with the same period a year earlier “as a result of taking advantage of the newly promulgated pricing mechanism for refined products,” it said in a statement to the Hong Kong stock exchange yesterday.
Operating profit from the refining business at Sinopec, Asia’s biggest refiner, was 6.7 billion yuan in the first nine months, compared with a loss a year earlier. The government shortened its price adjustment window to 10 days in March from 22 days to allow retail fuel prices to link more closely to international crude price changes.
Four senior managers at PetroChina were removed from their posts in August after allegations of corruption. Former Chairman Jiang Jiemin was dismissed from his post as head of the state assets regulator and is under investigation, the official Xinhua News Agency said Sept. 2. The probe has hurt the explorer’s shares, which have declined 19 percent this year in Hong Kong.
The investigation highlights President Xi Jinping’s willingness to tackle graft, which he has said threatens the communist party’s 64-year grip on power.
“The corruption investigation makes PetroChina a safer bet since the government will be watching the company more closely,” said Simon Powell, head of oil and gas research as CLSA Ltd., who rates the stock a buy.
PetroChina’s oil and natural gas output rose 4.3 percent to 1.04 billion barrels in the first nine months, of which 101.4 million barrels were from overseas projects, according to the statement. Average realized crude price declined 3.6 percent to $99.85 in the nine months.
Crude and natural gas production at Sinopec rose 4 percent in the first nine months to 331 million barrels, according to the statement.
Cnooc Ltd. (883), China’s biggest offshore oil and gas producer, posted a 16 percent increase in third-quarter sales on Oct. 24, after output was boosted by the acquisition of Canada’s Nexen Inc. The company doesn’t report quarterly profit.
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