New | Investors shrug off 12.6pc earnings drop at oil major Sinopec

Investors shrugged off a 12.6 per cent decline in net profit at China Petroleum & Chemical (Sinopec), with its shares edging up in early morning trade on Friday. The nation’s second-largest oil and gas producer saw its third-quarter earnings slump after sharply lower oil prices cut revenues. It also incurred a major inventory loss at its refining division. Net profit at the state-backed firm for the three months to September 30 amounted to 19.26 billion yuan (HK$25 billion), down from 22.02 billion yuan in the same quarter last year, it announced on Thursday night. Revenue rose 4.8 per cent year on year to 759.5 billion. Sinopec’s shares inched up 1.1 per cent to HK$6.79 in early trade. Operating profit dropped 23.6 per cent year on year to 24.1 billion yuan in the nine months, due largely to crude oil inventory loss at its refining operation. This was offset by a jump in investment gains to 2.37 billion yuan from 32 million yuan, and a 180 per cent rise in earnings derived from jointly operated and joint venture companies to 1.63 billion yuan. For the year’s first nine months, net profit slid 0.96 per cent year on year to 51.8 billion yuan. A 66.8 per cent year-on-year jump in oil refining operating profit to 11.1 billion yuan in the nine months was more than offset by a 10.7 per cent drop in oil and gas production operating profit to 41.75 billion yuan and a widening in chemical operating loss to 3.52 billion yuan from 59 million yuan in the same period last year. Amid a 25 per cent crude oil price drop since June and continued oversupply in downstream refining and chemicals businesses, expenditure for resources development and capacity expansion fell 20 per cent year-on-year to 69.4 billion yuan in the year’s first nine months. It amounted to just 42.9 per cent of the full-year budget of 161.6 billion yuan, which was only 4.1 per cent less than last year’s actual spending of 168.6 billion yuan. Meanwhile, CNOOC, the nation’s dominant offshore oil and gas producer, saw its share price close 4.5 per cent lower on Thursday at HK$12, its lowest in almost seven months, after chief financial officer Zhong Hua told analysts the company’s long-stated target for oil and gas production would grow by an average of 6 per cent to 10 per cent between 2011 and 2015 includes the contribution from Canada’s Nexen acquired early last year. It was communicated via teleconference on Wednesday’s third-quarter performance update. Some analysts took it that this implied a cut in its target, since they understood from management previously that the target excludes Nexen’s contribution. The target was first announced in early 2010. “We had always thought, perhaps mistakenly, that the Nexen acquisition specifically did not count towards this target,” Jefferies’ analysts said in a research note on Thursday. “Whatever the case, we downgrade our rating to hold.” Barclays’ analysts said management’s guidance on the target “could have been clearer,” adding: “Our understanding is that the company is still targeting the lower end of its [five-year] target, ex-Nexen.” Meeting the 6 per cent target would require a 20 per cent growth next year, they said, adding they have a more conservative forecast of 5 per cent on the five-year growth and a 14.5 per cent output rise for next year. Sanford Bernstein’s analysts said in a note that after management indicated that Nexen’s contribution is included for the target, they are now projecting a 6 per cent average output growth excluding Nexen for 2011 to next year, and 9.1 per cent if it is included. Asked about the confusion, a CNOOC spokesman on Thursday told the South China Morning Post that it has not changed its five-year output growth target, and that including Nexen, it expects to “come close to the higher end” of the 6 to 10 per cent target. She did not give any guidance on the growth expectation excluding Nexen. Concerns that CNOOC will cut capital expenditure next year also saw investors dump sister firm China Oilfield Services’ (Cosl) shares on Thursday, which closed down 8.5 per cent at HK$16.62, the lowest in just over three months. Analysts at Barclays and Nomura expect CNOOC’s spending on resources exploration, development and production to decline next year, as lower oil prices are expected pressure operating cash inflows. “However, to sustain long-term production growth, we don’t believe there is large scope for capex cuts,” said Nomura’s analysts in a note. Capital expenditure in the year’s first nine months grew 24 per cent year on -year to 74.3 billion yuan. It has budgeted 105 billion to 120 billion yuan for the full-year, up 13.6 to 30 per cent from last year’s actual spending of 92.4 billion yuan. Cosl on Thursday night posted a 2.7 per cent year-on-year net profit rise in the third quarter to 2.18 billion yuan, as revenue grew 12.3 per cent to 8.54 billion yuan. It said in a filing to Hong Kong’s stock exchange that the result was negatively affected by the idling of some equipment since there were time gaps between its service contracts. It did not elaborate. Net profit for the year’s first nine months rose 22 per cent year on year to 6.55 billion yuan.

New | Investors shrug off 12.6pc earnings drop at oil major Sinopec

Sinopec shares rise in early trading despite decline in third-quarter net profit