Hong Kong company reporting season

Chinese oil firms tipped to post steep plunge in interim profits

Lower oil and gas prices, output cuts continue to weigh heavily on bottom lines

PUBLISHED : Sunday, 21 August, 2016, 2:36pm
UPDATED : Sunday, 21 August, 2016, 10:07pm

China’s three state-backed oil and gas firms are expected to report this week some of their worst interim results since their stock market listings, as lower oil and gas output and prices continued to take a toll on their bottom lines.

Kicking off the sector’s reporting season, the nation’s largest oil and gas producer PetroChina is expected to post on Wednesday a headline net profit of 252 million yuan for the first six months of the year, the lowest since its listing in 2000, according to the average estimate of analysts at BNP Paribas, Nomura and Sanford Bernstein.

Had it not booked an estimated non-recurring accounting gain of 24 to 25 billion yuan from a stake disposal in its gas pipeline assets in Central Asia in the second quarter, it would have been deep in the red. It earlier posted a first-quarter net loss of 13.78 billion yuan, its first ever quarterly loss.

“Given [the Brent crude oil benchmark] averaged [30.6 per cent lower year-on-year] at US$40.3 a barrel in the first half of the year, we expect all Chinese companies under coverage to [have incurred] a loss in upstream [oil] production,” Sanford Bernstein senior analyst Neil Beveridge said in a note.

PetroChina posts first ever quarterly loss on oil plunge while Sinopec reports big profit jump

Nomura’s regional head of oil and gas research Gordon Kwan estimated the overall break-even point of PetroChina’s oil fields to be US$43 a barrel, compared to US$49 of rival China Petroleum & Chemical (Sinopec) and US$45 of CNOOC, the nation’s dominant offshore oil and gas producer.

Beveridge expects upstream profit for the second half to improve as oil prices are expected to gain from the reduction in global inventories.

He estimated PetroChina’s first-half oil output to have fallen by 2 per cent, against its full-year target of a 4.9 per cent decline, while that of gas has surged by 9 per cent, well ahead of its full-year target of 1.3 per cent.

Sinopec, the nation’s third largest oil and gas producer and the world’s second largest oil refiner, is forecast to announce on Sunday a 42.5 per cent year-on-year fall in first-half net profit to 14.6 billion yuan, the lowest in eight years, according to the average estimate of Nomura and Sanford Bernstein’s analysts.

Sinopec Group believed to be considering stake in Saudi Aramco’s planned IPO

Besides weaker oil and gas prices, the firm was also hit by a 11.4 per cent year-on-year decline in first-half oil output as it was forced to shut down loss-making high-cost fields, much higher than the 5 per cent it was targeting for the full year.

Its first-half gas output growth of 10 per cent was also behind its full-year target of 17.7 per cent, due to production disruption from a pipeline transmission problem at its Puguang field in Sichuan province.

Sinopec’s poor upstream performance was partly offset by better results in downstream oil refining and chemicals production thanks to favourable state fuel pricing policy and lower feedstock costs for chemicals, Nomura’s Kwan wrote in a note.

Given Sinopec’s current estimated proven oil reserve is enough to meet only seven more years of production at current output rate, he said it is possible for it to buy overseas oil fields or form joint ventures with global peers to bolster its flagging reserves.

CNOOC warns of 8 billion yuan loss after Canadian oil sands writedown

Meanwhile, CNOOC is expected to unveil on Wednesday an around 8 billion yuan net loss for the year’s first half – its first loss since going public in 2001. The company had already issued a profit warning to the Hong Kong’s bourse late last month.

The bulk of the expected loss was due to asset impairment at its Canadian unit Nexen, whose Long Lake oil sands processing plant that upgrades raw bitumen to higher value light crude oil was mothballed.

Nexen decided to suspend plans to repair the facility last month after it was damaged by a deadly blast in January, amid ongoing loss-making levels of oil prices. The project was also troubled by an oil spill last year.