Bloomberg News

PetroChina Gains Top Sinopec as Crude Counters Refining Loss

October 27, 2011

(Updates with Exxon’s profit in sixth paragraph.)

Oct. 28 (Bloomberg) -- PetroChina Co.’s third-quarter profit growth outpaced gains by rival China Petroleum & Chemical Corp. as higher crude oil prices helped counter refining losses at Asia’s biggest company by market value.

Net income rose 7.8 percent from a year earlier to 37.4 billion yuan ($5.9 billion), PetroChina said yesterday. That surpassed the 33.3 billion-yuan mean estimate of six analysts surveyed by Bloomberg. Sinopec, as China Petroleum is known, said profit increased 3 percent to 20.2 billion yuan.

PetroChina, which gets almost three times the operating income from energy exploration than Sinopec, benefitted more from higher oil prices as it boosted output to meet demand in the world’s second-largest economy. Chinese energy companies are adding oil and gas assets from Australia to North America to curb losses from selling fuels at state-controlled prices.

“Sinopec will continue to look aggressively around the world for feasible acquisition targets,” said Shi Yan, a Shanghai-based energy analyst at UOB-Kay Hian Ltd. “PetroChina will be alright as long as its upstream income can more than offset refining losses.”

PetroChina climbed 0.4 percent to HK$10.42 in Hong Kong trading as of 10:01 a.m. local time today, while Sinopec declined 0.3 percent to HK$7.65. PetroChina rose 2.6 percent this year and Sinopec gained 3 percent, beating the 13 percent drop in the benchmark Hang Seng index.

Refining Losses

Profit growth at China’s biggest oil companies trailed Royal Dutch Shell Plc and Exxon Mobil Corp. because of refining losses. Europe’s largest oil company said yesterday third- quarter net income doubled as crude prices rose and it ramped up projects from Qatar to Canada. Exxon’s profit jumped 41 percent.

Oil averaged 23 percent higher in New York in the first nine months. PetroChina’s operating profit from oil and natural gas production rose 40 percent to 160.8 billion yuan in the period, compared with a 35 percent increase to 55.3 billion yuan for Sinopec, Asia’s largest refiner.

Losses from refining amounted to 41.5 billion yuan for PetroChina and 23.1 billion yuan for Sinopec. PetroChina said Oct. 21 its refining loss may widen to 50 billion yuan for the year, from 23.4 billion yuan in the first half. Sinopec’s six- month refining loss was 12.2 billion yuan.

Refining at PetroChina increased 10 percent in the first nine months to 725.2 million barrels, equivalent to about 2.7 million barrels a day. Sinopec processed 4.4 million barrels of crude daily, 3.6 percent more than a year earlier.

Fuel Prices

“Refining losses could get worse in the fourth quarter after China cut fuel prices this month,” said Gordon Kwan, Mirae Asset Securities Ltd.’s head of regional energy research in Hong Kong. “PetroChina will perform better in the fourth quarter because it’s got a much bigger upstream business.”

China cut fuel prices in October for the first time this year as the government clamped down on inflation, following increases in April and February. The reduction came after the inflation rate slowed to 6.1 percent in September from a three- year high of 6.5 percent in July.

PetroChina’s crude and gas production rose 5.1 percent to 959.3 million barrels of oil equivalent in the first nine months, while Sinopec’s output gained 0.8 percent to 303.3 million barrels. Cnooc Ltd., China’s third-largest oil company, said Oct. 26 it produced 249.6 million barrels of oil equivalent in the first nine months.

Nine-month profit at PetroChina reached 103.4 billion yuan, while Sinopec’s net income totaled 61.4 billion yuan. PetroChina may report full-year profit of 148.9 billion yuan, while the country’s largest refiner may post net income of 75.8 billion yuan, according to the mean estimates of analysts in a Bloomberg survey.

Overseas Acquisitions

Chinese energy companies bid more than $16 billion for overseas assets this year to bolster reserves and production.

PetroChina this year bought a 50 percent stake in the European oil-refining operations of Ineos Group Holdings Plc for $1.02 billion. Arrow Energy Ltd., owned by Shell and PetroChina, agreed last month to acquire Bow Energy Ltd. after sweetening its offer to A$535 million ($567 million), gaining resources for a gas project in Australia.

In June, PetroChina walked away from a C$5.4 billion ($5.4 billion) bid for Encana Corp.’s Cutbank Ridge gas assets after failing to agree on the price. The acquisition would have been its largest overseas deal.

China Petrochemical Corp., Sinopec’s parent, agreed this month to buy Daylight Energy Ltd. for about C$2.2 billion to gain access to Canadian oil and shale-gas reserves in its biggest acquisition this year.

Cnooc, co-owner of Bridas Corp., said Oct. 25 the Argentine crude producer is yet to obtain regulatory approvals for the $7.1 billion acquisition of BP Plc’s 60 percent stake in Pan American Energy LLC. BP said it may complete the sale next year.

PetroChina was overtaken by Apple Inc. as the world’s second-largest company by market value last year. Exxon Mobil Corp. is the biggest.

--Editors: Amit Prakash, Ryan Woo.

To contact the reporter on this story: Guo Aibing in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.


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