Sinopec (SNP) Q3 Earnings Decline on Lower Crude Prices

China Petroleum and Chemical Corporation (SNP), also known as Sinopec, reported third-quarter 2014 net income of 19.3 billion yuan (US$3.13 billion) or 0.165 yuan per diluted share, compared with 22 billion yuan (US$3.59 billion) or 0.176 yuan per diluted share in the year-ago quarter. Earnings per ADR came in at $2.68 (exchange rate: US$1.00 = 6.16 yuan, 1 ADR = 100 shares).

Lower crude prices, higher operating expenses and weak Chinese demand hurt the results.

Revenues in the third quarter improved 4.8% to 759.5 billion yuan (US$123.3 billion) from 724.7 billion yuan (US$117.8 billion) in the prior-year quarter, owing to higher production.

Operational Performance

During the first nine-month period ended Sep 30, 2014, Sinopec’s crude oil production grew almost 8% year over year to 268.9 million barrels, while natural gas volumes expanded more than 9% year over year to 530.8 billion cubic feet. Domestic crude oil production increased marginally to 232.5 million barrels, while overseas volumes surged 107% year over year to 36.4 million barrels.

Total oil and gas production grew more than 8% year over year to 357.4 million barrels of oil equivalent.

A decline in crude oil prices along with rising expenses resulted in an almost 11% fall in the Exploration and Production (E&P) segment’s operating profit from the prior-year quarter. The figure came in at 41.8 billion yuan (US$6.8 billion).

The company’s Refining business recorded refinery throughput of 175.8 million tons, marginally up from the year-ago quarter. Refining operating profit jumped 67% year over year to 11.1 billion yuan (US$1.8 billion).

The Marketing and Distribution segment sold 138.2 million tons of refined oil products, reflecting 3% year-over-year increase.

The output of ethylene from the Chemicals segment was 7.858 million tons, up 6% from the year-ago level.

Operating Cost

Total operating expenses during the third quarter came at 737 billion yuan, 6% higher than the year-ago-quarter.

Capital Expenditure

Capital expenditures for the first nine months of 2014 totaled 69.387 billion yuan.

Capital expenditure for the E&P segment was RMB 37.23 billion, utilized for the development oil and gas production capacities at various oil and gas fields, including Shengli and Tahe oilfields, Yuanba marine faces and Daniudi gas fields.

Capital expenditure for the Refining Unit was RMB 11.02 billion, used primarily for refinery upgrading and revamping of projects in Yangzi, Shijiazhuang, Jiujiang and Tahe.

In the Chemicals segment, RMB9.42 billion was used for product mix adjustment developments, for the purchase of the Ningdong coal chemical project and for the ZhongAn coal chemical development.

Capital expenditure for the Marketing and Distribution segment was RMB 9.67 billion, used for developing and revamping service stations (including gas stations), construction of depots, ensuring safety and improving the environment.

A total of RMB 2.06 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 #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the energy sector like Magellan Midstream Partners LP (MMP), Cobalt International Energy Inc. (CIE) and Murphy USA Inc. (MUSA). All the stocks sport a Zacks Rank #1 (Strong Buy).

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Read the Full Research Report on MMP
Read the Full Research Report on CIE
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