Sinopec Profit Falls on Crude Oil Price, Exploration Costs

China Petroleum & Chemical Corp., Asia’s biggest refiner, missed estimates with a 15 percent decline in first-quarter profit, as lower crude prices and higher exploration costs crimped earnings.

Net income fell to 14.1 billion yuan ($2.26 billion) in the three months ended March 31, from 16.7 billion yuan a year earlier, the Beijing-based company known as Sinopec said yesterday. The average of five analyst estimates compiled by Bloomberg was 15.9 billion yuan. PetroChina Co., the country’s biggest oil and gas producer, posted a 5 percent decline in first-quarter profit last week due to lower crude prices.

The stock risks downgrades as Sinopec has met only 20 percent of its full-year earnings projections, according to a research note from Barclays Plc today, which also cited an operating loss in chemicals and lackluster gains at its core refining business. Sinopec’s shares fell to their lowest in more than a month.

The weaker-than-expected performance comes as Sinopec positions itself at the forefront of China’s restructuring of its state-owned enterprises. The plan is to allow markets a bigger role in the allocation of resources and Sinopec is offering as much 30 percent of its marketing division to private investors. It’s also accelerating shale gas production, led by its Fuling project in southwest China.

Simplify Structure

Sinopec shares declined 1.6 percent to HK$6.79 as of 10:38 a.m. in Hong Kong, while the city’s benchmark Hang Seng Index gained slightly. Of the 35 analysts that cover the stock, 27 recommend buying Sinopec, according to data compiled by Bloomberg. Barclays analysts Somshankar Sinha and Lou Ying said they retained the stock at Equal Weight, while preferring PetroChina for its higher earnings growth and stronger balance sheet.

Sinopec flagged a further simplification of its structure, reiterating its promise to acquire overseas oil and gas assets held by its parent, China Petrochemical Corp., without giving a timetable. The listed unit said it would become its parent’s sole platform for exploration, production, refining, chemicals and petroleum sales, to avoid competing with China Petrochemical.

Sinopec and its parent agreed to set up a 50-50 joint venture in March 2013 to acquire upstream assets in Kazakhstan, Colombia and Russia. The parent still owns oil and gas assets in Canada, Egypt, Brazil, Africa and the Middle East, according to data compiled by Bloomberg.

“Sinopec is the star in both structural reform and shale gas exploration, and progress made in both sectors may provide improved profit margins going forward,” Wu Fei, an energy analyst at Bocom International, said by phone from Shanghai yesterday.

Sinopec’s sales declined 8 percent to 641 billion yuan and operating profit at its exploration and production business dropped 19 percent to 13.2 billion yuan in the first quarter.

Crude oil output rose 9 percent to 89.4 million metric tons, while the oil price realized by Sinopec declined 4 percent to $95.39 per barrel, Sinopec said. Gas output gained 9 percent to 177.4 billion cubic feet.

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