All three of the mainland's state-backed oil and gas majors are tipped by analysts to post lower profits for last year, although they are expected to see better fortunes this year.
A survey of more than 30 brokerages by Thomson Reuters gave an average prediction for PetroChina, the nation's largest oil and gas producer, which is due to report on Thursday, of a 6 per cent decline in net profit to 125 billion yuan (HK$156 billion).
For the second-largest producer, China Petroleum & Chemical (Sinopec), which is due to report on Sunday, the analysts predicted a 12.6 per cent fall in net profit to 62.7 billion yuan.
CNOOC, the mainland's dominant offshore oil and gas producer, which is due to reveal its results on Friday, was predicted to show a 7.6 per cent drop in profit, to 64.9 billion yuan.
The Brent international crude oil benchmark averaged US$111 last year, the highest annual average on record, up 3.5 per cent from 2011, according to Reuters. However, the big mainland oil firms have been hit by rising production costs, and losses in downstream oil refining and natural gas imports.
CNOOC, a pure oil and gas producer that has no oil refining or gas import operations, saw its profits squeezed by higher production costs that more than offset gains from higher oil prices, amid slow output growth.
CNOOC estimates its oil and gas output was 341 million to 343 million barrels of oil equivalent (boe) last year, up between 2.8 and 3.4 per cent from 331.8 million boe in 2011. It is targeting 338 million to 348 million boe for this year.
But the target may be raised when the company announces its results, as it has completed the acquisition of Canada's Nexen, which CNOOC said in July last year would boost its output this year by about 20 per cent and its proven reserves by 30 per cent.
The US brokerage Sanford C. Bernstein estimated in a research report that Sinopec, the world's second-largest oil refiner by capacity, and PetroChina, the nation's second-largest refiner, racked up a combined 46 billion yuan of losses in their refining operations last year.
In the seven years to last year, the two companies only achieved a positive refining margin in 2009 and 2010, as Beijing raised refined fuel prices slower and by smaller amounts, compared to crude oil prices, to try to tame inflation.
Analysts estimate that the mainland's refining majors will need to spend 52 billion yuan in the next five years to upgrade their refineries to meet Beijing's requirements for improving fuel quality and address the worsened air pollution in big cities.
They expect Beijing to push through reforms to make fuel prices more market-oriented and reflect demand and supply better, which would help improve the profitability of refining operations and recover the costs of upgrading the refineries.
Meanwhile, Citi's analysts estimated that PetroChina's losses on importing internationally priced natural gas, mainly from Turkmenistan, rose to 41.8 billion yuan last year from 21 billion yuan in 2011. The loss was because mainland gas prices are set by the state and are kept low to protect the poor.
Sinopec is expected to start importing gas only in November, while CNOOC does not import gas, leaving that to its parent company.
Citi's analysts said PetroChina's loss could balloon to 91.6 billion yuan in 2017 if Beijing did not raise gas prices, because its contractual commitments with gas sellers meant import volumes would surge.
If PetroChina's gas selling price is raised from the 1.50 yuan per cubic metre set last year to 2.40 yuan in 2017, the loss on imports would fall to 38.1 billion yuan by then, Citi said.
This would be more than offset by a surge in operating profit from domestic gas production from 43.6 billion yuan last year to 173.6 billion yuan in 2017, as PetroChina ramps up its output and pipeline capacity.
However, Citi's analysts cautioned: "Our earnings estimates could change significantly depending on whether [price rises] are faster or slower than [our assumption]."