China oil giants feast on higher prices
Date: 16-Jul-04
Country: HONG KONG
Author: Wendy Lim
PetroChina Ltd. (0857.HK: Quote, Profile, Research) said yesterday its first-half oil prices rose nearly six percent on the back of strong global demand, but output remained flat as production at its ageing Daqing field in northeastern China did not keep up with domestic demand that is expected to rise by 14.5 percent this year.
To meet its thirst for oil, China's imports surged nearly 40 percent in the first half, state media have reported.
Smaller rival Sinopec Corp. (0386.HK: Quote, Profile, Research) , Asia's largest refiner, said surging local demand probably pushed its first-half net profit up by more than half. China-listed firms are required to issue a warning if they expect their results to move by 50 percent or more in either direction.
"Both did very well because they are highly leveraged to oil prices," said Eva Chu, head of research at Kim Eng Securities.
Analysts said future profits at both would rely on oil prices. China's efforts to cool its soaring economy might also crimp demand growth.
Petrochina is expected to report full-year 2004 net profit of US$8.9 billion and Sinopec US$3.4 billion, according to the mean forecast of 17 analysts polled by Reuters Research. In 2003, PetroChina post a net profit of US$8.4 billion and Sinopec US$2.61 billion.
Shares in both counters were flat yesterday, slightly outperforming other Hong Kong-listed China shares.
PetroChina (PTR.N: Quote, Profile, Research) , one of the most profitable companies in Asia, is expected to post record profits when it reports its first-half results in late August, some analysts said.
"The company believes the market conditions as well as the current global and domestic environment are favourable for PetroChina," PetroChina said in a statement.
State-controlled PetroChina said its average oil selling price rose nearly six percent year on year to US$29.76 per barrel in the first six months.
PetroChina uses the majority of its crude output for its own downstream operations. BOC International analyst Lawrence Lau said its first-half oil price was slightly below its expectation.
Oil consumption in the United States and China pushed oil prices to record highs in the first half. The average price for benchmark North Sea Brent crude stood near US$34 per barrel in the first half compared with US$28.80 a year earlier.
Beijing-based PetroChina said its first half total oil and gas production rose 2.7 percent to 456.7 million barrels of oil equivalent (BOE), driven by a 17.4 percent increase in natural gas production. But oil output inched up jyst 0.5 percent to 388.3 million barrels in the first six months.
SINOPEC
Sinopec (SNP.N: Quote, Profile, Research) (600028.SS: Quote, Profile, Research) , which expects to publish interim results on August 30, said it benefitted from the rise in China demand and the continuing boom in the global chemical sector.
"This is above our expectations. We expect their downstream operations - refining and chemical - did very well," said Michael Lee, an analyst at UOB Kay-Hian.
In the first three months of this year, Sinopec generated about 70 percent of its earnings before interest and tax from downstream operations, Lee said.
State-controlled Sinopec posted a 24.8 percent rise in first-quarter profits as its refining and chemical businesses cashed in on China's robust economic growth.
UOB expects Sinopec to post a first-half profit of 14.68 billion yuan, an increase of over 37 percent, based on international accounting standards. Sinopec's guidance yesterday was based on Chinese accounting standards.
Sinopec earned 9.77 billion yuan (US$1.2 billion) in the first half of 2003 under mainland accounting standards, or 10.7 billion yuan under international standards.
China's oil demand is expected to increase by 14.5 percent to 800,000 barrels per day this year, and grow by another 8.1 percent in 2005.
(Additional reporting by Vicki Kwong)
