PetroChina Profit Unexpectedly Rises on Higher Oil Output

PetroChina Co. (857)'s first-quarter profit rose unexpectedly after it ramped up oil and gas production, while China Petroleum & Chemical Corp. (600028)'s earnings slumped on losses from selling fuels at state-controlled prices.
Net income rose 5.8 percent from a year earlier to 39.2 billion yuan ($6.2 billion), PetroChina reported yesterday, beating the 34.8 billion yuan mean estimate in a Bloomberg survey. Profit at Sinopec, as China Petroleum is known, slumped 35 percent, almost triple the pace forecast by analysts.

Earnings at PetroChina, the country's biggest oil producer, contrast with Exxon Mobil Corp.'s 11 percent drop and flat growth at Royal Dutch Shell Plc. (RDSA) State-owned PetroChina and Sinopec are buying energy assets abroad to diversify from refining and are pressing the government to deliver on its pledge to relax controls on gasoline and diesel prices.

"Both Chinese companies are living at the mercy of China's fuel-prices reforms," said Anna Yu, an analyst at ICBC International Research Ltd. in Hong Kong. "While PetroChina hedged the risks better because of its strong presence in oil and gas production, Sinopec (386) is in a position to deliver as long as China reforms its pricing mechanism."

China, which controls fuel prices to curb inflation, raised them by as much as 11 percent in the first quarter, while Brent oil rose 12 percent from a year earlier to $118.45 a barrel in the period. Last year, the government raised prices as much as 7.1 percent while crude gained 13 percent.

Asset Acquisition

Overseas fields contributed to higher output at PetroChina, which plans to spend $60 billion to boost the share of global assets this decade. Sinopec has bid for $9.3 billion in overseas energy assets in the past year.

Chinese companies have acquired more than $94 billion of overseas energy assets since January 2009 to secure supplies to fuel expansion in the fastest-growing major economy. State- controlled Cnooc Ltd. (883) is among companies buying energy assets abroad and developing shale-gas resources at home.

Sinopec's profit fell to 13.4 billion yuan in the three months ended March 31, from 20.6 billion yuan, Asia's biggest refiner said yesterday, missing the 18.1 billion-yuan mean estimate in the Bloomberg survey.

The company's refining loss surged 16-fold to 9.2 billion yuan from 576 million yuan a year earlier. Sinopec processed 55.4 million tons (393.4 million barrels) of crude, an increase of 2.1 percent.

Refining Losses

Sinopec attributed "a significant operating loss" from refining to higher oil prices, government controls and the need to increase processing to ensure sufficient fuel supplies. "The company's oil refining facilities are currently operating at full capacity," Sinopec said in a statement.

PetroChina lost money in the refining business and in the sale of imported natural gas, areas where prices are capped by the Chinese government.

PetroChina's operating loss from refining widened to 10.4 billion yuan from 6.1 billion yuan a year earlier. The company processed 257.1 million barrels of crude oil in the first quarter, up 2.8 percent from a year earlier.

The first quarter marks "a solid bottom for both companies in terms of refining losses," said Simon Powell, the Hong Kong- based head of Asian Oil and Gas Research at CLSA Ltd. "The second quarter and half can only report better numbers as higher fuel prices kick in and international oil prices have no momentum to keep moving up."

Price Reforms

China's oil-product prices are adjusted when crude costs change more than 4 percent over 22 working days. The pricing cycle may be shortened to 10 days to let fuel prices better reflect crude price changes, the National Development and Reform Commission, China's top planner, said in February.

"If China's pricing reforms indeed happen this year, Sinopec will be the biggest beneficiary because of its scale of economy and the higher efficiency," CLSA's Powell said.

Shares in Sinopec have gained 3.2 percent in Hong Kong trading in the past year, compared with a 13 percent decline in the benchmark Hang Seng index. Rival PetroChina fell 3.1 percent in the period, while Cnooc dropped 17 percent.

PetroChina's oil and gas output climbed 6.1 percent to 345.5 million barrels of oil equivalent in the first quarter. Crude oil output reached 227 million barrels, up 3.6 percent, and the average realized price rose 14.8 percent to $105.48 a barrel.

Gas production rose 11.2 percent to 710.9 billion cubic feet, with the average realized price climbing 9.9 percent to $4.87 per thousand cubic feet.

Overseas production rose 17.1 percent to 31.2 million barrels of oil equivalent in the first quarter, the company said.
PetroChina still has "huge" potential to expand its oil output, Chairman Jiang Jiemin said in a group interview in Hong Kong last month. Overseas oil and gas output will count for 50 percent of PetroChina's production before 2020, he said.

Production of oil and gas abroad reached 120.8 million barrels last year, less than a 10th of the total of 1.3 billion barrels, or 3.5 million barrels a day.