Tue, Mar 29, 2011 - Page 11 News List

Sinopec looks to expand overseas

Bloomberg

China Petroleum & Chemical Corp (中國石化, Sinopec), Asia’s biggest refiner, will cut costs and accelerate its expansion overseas as government controls prevent it from passing on higher crude oil prices to customers.

Profits rose 14 percent to a record 71.8 billion yuan (US$11 billion) last year, the company said on Sunday. However, net income missed analysts’ estimates and trailed 85 percent growth at China National Offshore Oil Corporation Ltd (CNOOC, 中國海洋石油) and a 35 percent increase at PetroChina.

Refining profits fell 13 percent last year as Sinopec was forced to pay 51 percent for crude. The -Beijing-based refiner said it plans to expand globally over the next five years to reduce its dependence on domestic fuel sales.

“Sinopec under-performed its domestic peers because of its -bigger exposure to the refining business where margins are controlled by the state,” Shi Yan, an analyst at UOB-Kay Hian Ltd, said by phone from Shanghai. “Sinopec may want to expand its upstream exploration segments, including the development and acquisition of oilfields overseas, to counter the negative impact of high crude oil costs.”

The refiner said in March last year that it would pay its parent China Petrochemical Corp (中國石化) US$2.5 billion for a share of an Angolan asset to help offset the “challenges” in the refining business, in its first acquisition of an oilfield stake outside China.

This month, Sinopec signed an agreement with Saudi Arabian Oil Co to take a 37.5 percent stake in a refinery in Yanbu as Saudi Aramco expands oil-processing capacity to meet domestic fuel demand.

The Chinese refiner is keen to expand its overseas oil and gas operations, Sinopec president Wang Tianpu (王天普) said at a media briefing in Hong Kong yesterday.

Sinopec shares have advanced 21 percent in Hong Kong trading over the past year, compared with the 8.6 percent gain on the benchmark Hang Seng Index.

Fourth-quarter profits fell 22 percent from the previous three months to 15.4 billion yuan, according to calculations made by subtracting third-quarter earnings from annual net income. Sinopec spokesman Huang Wensheng (黃文生) did not reply to three phone calls seeking comment.

The firm, which gets 62 percent of its revenue from producing and selling fuel, failed to provide fourth-quarter figures in its earnings statement and revised its 2009 profit up from 61.8 billion yuan to 63.1 billion yuan. The mean estimate of 15 analysts for last year’s net income was 72.5 billion yuan.

Oil processing volumes rose 13 percent last year to 211 million tonnes as China’s economy grew at the fastest pace in three years, spurring demand for energy.

China, Asia’s biggest oil consumer, controls fuel prices to curb inflation. The government raised tariffs three times last year, by less than 5 percent each time, and cut once, while average crude prices increased 28 percent in New York compared with 2009.

Consumer prices rose 4.9 percent last month from a year earlier, exceeding China’s target for the year. The state last increased fuel prices on Feb. 21, by 4.6 percent, after crude surged above US$100 a barrel on concerns that anti--government protests in the Middle East and North Africa would disrupt supplies.

A mechanism introduced in December 2008 allows the National Development and Reform Commission, China’s top economic planner, to revise fuel prices when oil costs fluctuate by more than 4 percent over 22 working days.

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