Sinopec Q3 Profits Rise on Retail Fuel

Zacks Equity Research

China Petroleum and Chemical Corporation (SNP), also known as Sinopec, reported third quarter 2013 net income of 22.02 billion yuan (US$3.59 billion), up approximately 61.7% sequentially. Higher retail fuel prices contributed largely to the improvement.

Revenues in the third quarter improved 7.1% to 724.7 billion yuan (US$117.8 billion) from 676.7 billion yuan (US$110.0 billion) in the prior-year quarter.

Operational Performance

During the first nine-month period ending Sep 30, 2013, Sinopec’s crude oil production grew 1.9% year over year to 249.7 million barrels, while natural gas volumes expanded 10.9% year over year to 486.3 billion cubic feet. Domestic crude oil production increased 1.4% year over year to 232.2 million barrels, while overseas volumes increased 9.3% year over year to 17.5 million barrels.

Total oil and gas production grew 4.0% year over year to 330.8 million barrels of oil equivalent.

A sharp decline in crude oil prices resulted in a 15.5% fall in the Exploration and Production (E&P) segment’s operating profit from the prior-year quarter. The figure came in at 46.7 billion yuan (US$7.6 billion).

The company’s Refining business recorded refinery throughput of 174.2 million tons (up 6.4% year over year). Refining margins significantly improved to $5.49/barrel, up 149.5% year over year.

The Marketing and Distribution segment sold 134.6 million tons of refined oil products, reflecting a 4.9% year-over-year increase.

The output of ethylene from the Chemicals segment was 7.398 million tons, up 5.3% from the year-ago level.

Capital Expenditure

Capital expenditures for the first nine months of 2013 totaled 86.95 billion yuan.

Capital expenditure for the E&P segment was RMB 41.25 billion, mainly used for development in tight oil development in south Ordos, heavy oil development in west Shengli at shallow stratus, new blocks in the Tahe Oilfield, Yuanba and the Daniudi gas fields, and the Shandong LNG project.

Capital expenditure for the Refining Segment was RMB 12.71 billion, used mainly for upgrading oil product quality and revamping projects in Wuhan, Anqing and Maoming.

In the Chemicals segment, RMB12.76 billion was used for the construction of the Wuhan 800,000-tpa ethylene project, the Hubei syngas-to-MEG project and the Hainan aromatics project.

Capital expenditure for the Marketing and Distribution segment was RMB 17.36 billion, used mainly for developing and revamping service stations (including gas stations), the construction of refined oil product pipelines and depots, and for insuring safety and improving the environment.

The company added 671 new service stations (including gas stations) over the first three quarters of 2013. A total of RMB 2.86 billion was used for Corporate and Other purposes, such as construction of R&D facilities and IT projects.

Zacks Rank

Sinopec currently has a Zacks Rank #4 (Sell). However, there are other Zacks Ranked #1 (Strong Buy) stocks in the oil and gas sector – TransAtlantic Petroleum Ltd. (TAT), Exterran Partners, L.P. (EXLP) and Matador Resources Company (MTDR) – that appear rewarding in the short term.

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