China Petroleum & Chemical, or Sinopec, one of the country’s Big Three state-backed oil and gas producers and the world’s largest oil refiner, sought to allay concerns it was putting an order by Beijing to raise domestic output ahead of profitability. “One of the central government’s requirements for economic reforms is that market forces must play a decisive role when deciding resources allocation,” Dai Houliang, its chairman, said on Monday. “Corporate investment must be based on this principle, and be economically efficient.” His comments came after the company on Friday unveiled an oil and gas exploration budget of about 59.6 billion yuan (US$8.87 billion) for 2019, an increase of 41.2 per cent over last year. The Big Three have been ordered by President Xi Jinping to raise domestic output to enhance China’s national energy security. Last year’s budget itself represented a 35 per cent increase over 2017, and has yet to yield any apparent reportable results, especially in natural gas. While the proven reserves of crude oil increased 4.2 per cent last year, proven gas reserves have fallen by 2.7 per cent. Sinopec is aiming for a 0.3 per cent decline in crude oil output this year, compared with a 1.8 per cent fall last year, while gas production is targeted to rise by 4.3 per cent, slower than the 7.1 per cent growth reported last year. “We are not convinced that Sinopec has the resources to economically justify this level of additional upstream investment,” Jefferies’ analysts said in a note on Monday. “Surging 2019 upstream [investment is] not matched by production guidance.” Sinopec vice-president Ma Yongsheng said the company had made substantial new domestic resource discoveries in both oil and gas last year. He blamed lagging production growth compared with investment to project commercialisation delays – lengthy procedures for getting environmental impact assessments and other local government planning approvals. “We actually have proved major new gas reserves in the past few years, but these cannot be booked until their commercial sales potential can be established according to disclosure rules … this will be improved substantially this year, or next year, as related production and logistics matters are confirmed,” he said. Shares of world’s biggest oil refiner, Sinopec, plunge after suspension of two top executives in trading unit He also stressed that Sinopec had been controlling its project outlay carefully, and had built cost control into subsidiaries and business units’ management appraisal system. “Last year, our actual capital expenditure was some 6 billion yuan less than our budget, partly because of the project delays, but mostly because of costs saving,” he said. “Rest assured, we will only approve investment projects that are economically efficient.” Sinopec posted 20 per cent growth in net profit to 61.6 billion yuan for 2018 on Sunday, 5.9 per cent lower than an average estimate of 65.45 billion yuan by 16 analysts polled by Bloomberg. Its shares dropped 3.4 per cent to HK$6.29 on Monday, on the back of a 2.6 per cent decline in oil prices in New York on Friday.