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Heavy losses push Chinese refiners overseas

Sinopec and PetroChina are seeking overseas assets after revealing combined H1 processing losses of $6.6bn.

Pressure from governmental planning bodies is strangling profits at the nation's state-owned oil company's, causing them to seek more profit from overseas refining. China's top two firms, China Petroleum and Chemical Corp, also known as Sinopec and PetroChina Co, have posted significantly reduced earnings for the first half of 2012.

Petrochina exploration

Petrochina oil production Image: Petrochina

Refining losses at Sinopec, Asia's largest refiner, resulted in a 41% decline in first-half net income to 24.5 billion yuan ($3.9 billion), while rival producer PetroChina reported a 6% decline in profit to 62 billion yuan ($9.8 billion) during the same period.

Gasoline and diesel prices are set by the National Development and Reform Commission (NDRC), forcing refiners to artificially slash prices in order to ease domestic inflation. Although the NDRC has indicated it may relax price controls on natural gas and fuels in the second half, analysts remain sceptical. Shanghai-based analyst Shi Yan points out similar promises made by the nation's top economic planner which failed to materialise.

Slim-to-no margins mean the nation's top oil and gas producers are casting their nets further and further afield. PetroChina's Zhou Jiping said the company plans to generate over half of its oil and gas output from overseas by 2020. Sinopec has also said it will more than double its foreign production by 2015. Chinese state-owned oil companies have already spent more than $100 billion on overseas assets in the last ten years, although not all of them have been profit-making.

If it goes through, CNOOC's record $15.1 billion bid for Canda's Nexen Inc. is expected to set a precedent for large-scale overseas purchases by Chinese oil companies which have previously been hampered by a lack of available projects and distrust.

Tags: China, CNOOC, Corporate News, Forecasts, PetroChina, Sinopec

Published 24th September, 2012

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