Gusher for CNOOC, less for peers?

PUBLISHED : Monday, 22 August, 2011, 12:00am
UPDATED : Monday, 22 August, 2011, 12:00am


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The mainland's state-controlled oil and gas companies are expected to post divergent interim results in the coming week.

Higher oil prices are expected to bolster oil producer China National Offshore Oil Corp (CNOOC). However, the gains to oil refiners PetroChina and China Petroleum & Chemical (Sinopec) are expected to be largely offset by price controls on retail fuel.

On Wednesday, CNOOC will be the first among the three firms to announce their earnings results. CNOOC is expected to post a 44 per cent surge in first-half net earnings from a year ago to 37.4 billion yuan (HK$45.6 billion), according to the average estimate of Sanford C. Bernstein, Citigroup, Deutsche Bank, RBS and Mirae Asset Securities. Their estimates range between 35.9 billion yuan and 40 billion yuan.

CNOOC's earnings would likely be mostly bolstered by higher crude oil prices, as the Brent oil benchmark has jumped by 43 per cent from a year ago to US$111 a barrel, said RBS analyst Danny Huang. CNOOC's average selling price is usually at a six per cent discount to the benchmark. However, David Hurd, head of Asia oil and gas research at Deutsche Bank, estimated the price to have been at a slight premium to the benchmark in the first half - the first time in the past eight years. That was due to higher demand from Japan for certain types of oil, whose prices are closely linked to that of CNOOC's output, he said. Japan relied more on oil to fuel its power plants after it shut down many nuclear sites in the wake of the earthquake, tsunami and Fukushima nuclear plant disaster in March this year.

On Thursday, PetroChina, the nation's largest oil and gas producer, is expected to post an 8.6 per cent rise in earnings to 72.9 billion yuan, with analysts' estimates ranging between 67 billion yuan and 87.9 billion yuan.

Gordon Kwan, head of Asia energy research at Mirae Asset Securities, slashed his earnings estimate by 13 per cent to 67 billion yuan earlier this month.

He cited higher-than-expected oil production costs and losses from importing natural gas from Turkmenistan in Central Asia, due to Beijing's reluctance to raise retail gas prices to avoid stoking inflation.

The government's failure to raise motor fuel retail prices in the second quarter also meant losses for the refining operations of PetroChina and Sinopec.

'While PetroChina should be enjoying the benefits of strong [oil and gas production] growth, refining losses, the end of tax incentives in western China and losses on gas imports mean PetroChina is unlikely to be able to turn output growth into earnings growth,' according to a Bernstein report, forecasting earnings of 67 billion yuan for PetroChina.

On Sunday, Sinopec, Asia's largest oil refiner and the mainland's second-biggest oil and gas producer, is tipped by analysts to report a 4 per cent fall in first-half net earnings to 34 billion yuan. Citigroup expects Sinopec to post a second-quarter loss of 14.5 billion yuan in its refining operations. With oil prices sharply lower this month following the latest bout of global financial turmoil, the losses are expected to narrow in the third quarter.