Sinopec (SNP) 1H14 Earnings Increase on Higher Production


China Petroleum and Chemical Corporation (SNP), also known as Sinopec, reported first-half 2014 net income of 32.54 billion yuan (US$5.30 billion), up 7.5% from the prior-year quarter. Earnings per share of 0.277 yuan ($3.55 per ADS) rose 12.6% year over year. This was mainly due to rise in crude oil and gas production. Revenues in the first half of 2014 fell 4.2% to 1,356.17 billion yuan (US$220.78 billion).

Operational Performance

During the six-month period ending Jun 30, 2014, Sinopec’s crude oil production grew 7.5% year over year to 177.88 million barrels, while natural gas volumes rose 9.5% to 354.8 billion cubic feet. Domestic crude oil production inched up 0.3% year over year to 154.15 million barrels, while overseas volumes increased 101.4% year over year to 23.73 million barrels.

Total oil and gas production rose 8.0% to 237.01 million barrels of oil equivalent.

A sharp decline in crude oil prices led to an 8.7% fall in the Exploration and Production (E&P) segment’s operating profit from the prior-year period. The figure came in at 28.3 billion yuan ($4.61 billion).

The company’s Refining business recorded refinery throughput of 115.81 million tons (up 0.3% year over year). It also produced approximately 71.62 million tons of oil products, representing a 2.68% rise from the year-ago quarter.

The Marketing and Distribution segment sold 88.26 million tons of refined oil products, reflecting a 0.2% year-over-year increase.

The output of ethylene from the Chemicals segment was 5.084 million tons, up 5.0% from the year-ago level.

Capital Expenditure

Capital expenditures for the quarter totaled 39.186 billion yuan, of which 20.743 billion yuan was spent on exploration and production projects. In the Refining segment, Sinopec spent 6.592 billion yuan, while the chemical business and marketing and distribution segments were allocated 4.67 billion yuan and 5.83 billion yuan, respectively. The company also spent 1.351 billion yuan on the company’s scientific research facilities and IT projects.

Zacks Rank

Sinopec currently has a Zacks Rank #2 (Buy). Other stocks to consider in the oil and gas sector include Weatherford International plc (WFT), TransAtlantic Petroleum Ltd. (TAT) and Sunoco Logistics Partners L.P (SXL). All of these have a Zacks Rank #1 (Strong Buy) and appear rewarding for the short term.

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