Oil producer aims to increase capital expenditure to boost refining activities China Petroleum & Chemical Corp (Sinopec), the mainland's second-largest oil and gas producer, has disappointed the market after unveiling a 32.35 per cent rise in net profit to 21.59 billion yuan - 7.69 per cent less than the 23.39 billion yuan consensus forecast polled by Thomson First Call. A company spokesman said the discrepancy was probably due to analysts' under-estimate of a 2.2 billion yuan asset revaluation loss and staff redundancy costs of 1.01 billion yuan. Analysts said a higher than anticipated rise in the operating cost to extract a barrel of oil to US$6.47 for the whole year - compared with $6.26 in the first half - could also partly explain the difference. 'The fourth quarter [of last year] saw a sharp rise in oil production cost, which raises the question as to whether this will become a trend,' UOB Kay Hian analyst Michael Lee said. Asia's largest refiner said it planned capital expenditure of 50.2 billion yuan this year, up from 45.05 billion yuan last year. It will focus the spending increase on its strongest downstream business segments. Spending on the upstream segment of oil and gas exploration and production will be 19.9 billion yuan, marginally lower than last year's 20.63 billion yuan. About 11.8 billion yuan will be poured into the oil-refining business, up from 9.73 billion yuan previously. The marketing and distribution segment will receive eight billion yuan, up from 6.83 billion yuan, and chemicals production 9.5 billion yuan, up from 7.35 billion yuan. The company is aiming to produce about 274 million barrels of oil this year, up from 270.96 million barrels last year and 269.8 million barrels in 2002. Gas production is planned at 204.68 billion cubic feet this year, up 9.04 per cent from last year. Newly added proved oil reserves fell 44.53 per cent last year to 208 million barrels, due partly to a reduction in its stake in a gas project in the East China Sea with the introduction of Royal Dutch/Shell Group and Unocal as co-investors, which cut Sinopec's reserves by 25.4 million barrels. Still, excluding this effect, the company proved less new oil reserves than production for the first time in three years. This was despite the company spending 40.56 per cent more on exploration last year compared with 2002. Last year, a 22.92 per cent rise in realised oil price propelled oil and gas production's profit up 29.7 per cent to 19.2 billion yuan. The division contributed just over 50 per cent of total operating profit. Profit at its refining operation was flat at six billion yuan, while marketing and distribution's profit rose 41.7 per cent to 11.9 billion yuan. The chemicals arm surged 266.7 per cent to 2.2 billion yuan.