China’s oil and gas trio tipped to post lower 2015 profits and cut 2016 output amid oil price rout

PetroChina, Sinopec and CNOOC expected to slash output this year amid oil price rout

PUBLISHED : Sunday, 20 March, 2016, 12:01pm
UPDATED : Sunday, 20 March, 2016, 12:01pm

China’s state-backed oil and gas majors are expected to post significant profit declines for last year as the drastic fall in oil prices resulted in lower revenues and asset write-downs.

They are expected to slash output this year amid the oil price rout.

“There is a risk for significant impairment charges for certain upstream [exploration and production] assets following the collapse of global oil prices,” wrote Gordon Kwan, Nomura’s regional head of oil and gas research in a note. “Many upstream projects require much higher oil prices than US$40 a barrel to be economically attractive.”

According to estimates by senior analyst Neil Beveridge at American brokerage Sanford Bernstein, PetroChina needs the Brent oil benchmark to average US$50.9 a barrel this year for its upstream production operation to be viable, compared to US$59.7 for China Petroleum & Chemical (Sinopec) and US$45.6 for CNOOC. He forecast oil prices to average US$50 a barrel this year and US$70 next year. Brent averaged US$99 in 2014 and fell to an average of US$61.5 in 2009 when energy prices were pummelled by the global financial crisis.

Brent has traded between US$29 and US$41 a barrel since the start of the year.

Kwan estimated 28 billion yuan (HK$33.5 billion) of potential asset impairment charges for

There is a risk for significant impairment charges for certain upstream assets following the collapse of global oil prices
Gordon Kwan, Nomura analyst

PetroChina, as lower oil prices mean fewer resources are economically extractable.

PetroChina, the nation’s largest oil and gas producer, may post on Wednesday a 62.4 per cent decline in net profit to 40.3 billion yuan for last year from 107.2 billion yuan in 2014, according to the average forecast of 22 analysts polled by Thomson Reuters.

It would be the lowest profit since its stock market listing in 2000 when it reported a net profit of 55 billion yuan.

PetroChina said late January it expected to post a profit drop of 65 to 70 per cent for last year, citing lower oil and gas prices, implying a 2015 profit of 32.16 billion to 37.52 billion yuan.

The company said it would cut costs and restructure assets to improve its bottom-line.

Given that it posted a 68.1 per cent year-on-year net profit fall to 30.6 billion yuan in the first nine months of last year, its fourth-quarter profit could come in at 1.56 billion to 6.92 billion yuan.

Sinopec, the nation’s second largest oil and gas producer and the largest oil refiner and distributor, is projected by analysts to announce on March 29 a 27.1 per cent fall in net profit to 34.56 billion yuan for last year.

Profit from oil refining, fuel distribution and chemicals production helped offset losses in upstream production.

CNOOC, the nation’s dominant offshore oil and gas producer with no downstream operations, is expected by the analysts to report that net profit dived 68.9 per cent last year to 18.74 billion yuan.

Sanford Bernstein’s Beveridge projected that Chinese oil firms will continue to slash spending on drilling activities this year as more high-cost projects are shut down, which would result in a 5 per cent production cut by Sinopec, a 3 to 4 per cent curtailment by PetroChina and a 1 to 2 per cent reduction by CNOOC.

When PetroChina’s management presents the firm’s results this week investors will be looking for clues on the timing and scale of the potential stake sale and spin-off of gas pipeline assets into an independently-operated entity, which could help raise cash and enhance operating efficiency and profits.

PetroChina commands some 70 per cent of the nation’s natural gas market and owns most of the pipelines. Gas distribution and logistics was its second biggest profit contributor after oil and gas production in the first half of last year.