World's biggest refiner Sinopec posts record half-year earnings

Chinese giant says upstream business had “improved significantly” on higher international oil prices

Major Asian refiners such as Sinopec are set to benefit when new ship-fuel rules come into effect.. Reuters

China Petroleum & Chemical (Sinopec) said its half-year earnings jumped to the highest level on record as refining profits climbed and a rebound in crude prices brought its oil and gas exploration unit closer to breaking even.

Net income gained to 42.4 billion yuan (Dh22.76bn) in the first six months from 27.9bn yuan a year earlier, the world’s biggest refiner said in a filing to the Shanghai stock exchange on Sunday, citing international accounting standards. That is its best half-year profit on record, according to data compiled by Bloomberg dating back to 2000.

Sinopec flagged the jump in first-half earnings in a profit alert last month, adding that its upstream business had “improved significantly” because of higher international oil prices. The company, which makes most of its money from processing oil into fuels, has been burdened in recent years by losses from its exploration and production segment as its ageing fields have higher production costs.

“Good cost control and better margins from selling higher-grade fuel products helped offset higher oil purchase prices for Sinopec’s refining business,” said Tian Miao, an analyst at Everbright Sun Hung Kai in Beijing.

Sinopec shares in Hong Kong gained 1.2 per cent to close at HK$7.52 on Friday. The stock has risen 31 per cent this year compared with a 7.5 per cent decline in the city’s benchmark Hang Seng Index. Global benchmark Brent crude averaged about $71 per barrel between January and June from $53 a year earlier.

Operating losses from Sinopec’s exploration and production division narrowed to 412 million yuan in the first half from 18.3bn yuan a year earlier, according to its statement. Operating profit from the refining business climbed 32.5 per cent to 38.9bn yuan, while the chemical segment posted a 29.7 per cent gain.

“While higher oil prices boosted Sinopec’s upstream business, it still falls short of breaking even,” Mr Tian said. “That might raise concern on how competitive its exploration business is, as even with oil prices at about $70, it’s still unable to turn a profit.”

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Sinopec proposed an interim dividend of 0.16 yuan a share. Revenue rose 11.5 per cent to 1.3 trillion yuan. Capital expenditure reached 23.7bn yuan in the first half, compared with a full-year estimate of 117bn yuan.

On a quarterly basis, Sinopec’s net income more than doubled to 23.1bn yuan in the three months through June from 10.7bn a year ago, according to Bloomberg calculations.

Rival Cnooc said on Thursday its net income rose 57 per cent in the first six months to the highest level since the second half of 2014. The company pledged higher spending through the rest of this year to meet investment targets. PetroChina, the nation’s biggest oil and gas producer, is set to post a doubling in profit when it releases earnings on August 30.

Sinopec on Sunday gave output estimates for the second half of 2018, saying it expects crude oil output of 146 million barrels and is targeting natural gas output of 497.8 billion cubic feet.

It forecasts crude oil processing of 121 million tonnes and plans domestic oil product sales of 90.5 million tonnes.