Hong Kong company reporting season

Chinese oil majors to unveil better first half results on oil price rebound

PUBLISHED : Sunday, 20 August, 2017, 9:06pm
UPDATED : Sunday, 20 August, 2017, 10:56pm

China’s three state-backed oil and gas titans are expected to post much improved interim results this week on the back of a rebound in energy prices thanks to faster global economic growth and supply cut backs by major producers.

PetroChina, the nation’s largest producer of both oil and natural gas, is tipped to report on Thursday an interim net profit of 9.96 billion yuan (US$1.5 billion) for the first six months of the year, according to the average estimate of two analysts polled by Bloomberg.

The company, which also has big oil refining, fuel distribution and chemicals production operations, late last month said in a stock exchange filing it expects the figure to come in between 9 billion and 10 billion yuan.

This is a sharp turnaround from a meagre profit of 531 million yuan in last year’s first half, which PetroChina attributed to higher oil prices and “strict control” on investments and costs.

The average price of the Brent oil price benchmark jumped 30 per cent year on year to US$51.8 a barrel in the first half, after oil cartel Organisation of the Petroleum Exporting Countries (OPEC) was forced to cut output to counter US shale oil producers’ expansion enabled by cost saving drilling technology.

In the first quarter, PetroChina’s oil and gas production business already turned in an operating profit of 1.92 billion yuan, compared to a loss of 20.27 million yuan in the same quarter last year.

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Haitong Securities analyst Deng Yong expects oil prices to hover between US$45 and US$55 a barrel in the year’s second half, which he said would give a direct boost to the firm’s earnings.

The Bloomberg consensus estimate of 11 analysts anticipates PetroChina to book a full year net profit of 29 billion yuan, much improved from 7.9 billion yuan last year but still a far cry from over 100 billion yuan regularly booked in the commodity boom years before the oil price slump that began mid-2014.

Rival China Petroleum & Chemical (Sinopec), the world’s second largest oil refiner by capacity that is also a major oil, gas and chemicals producer, is forecast by the analysts to report on Sunday an 11 per cent year-on-year rise in first-half net profit to 22.1 billion yuan. The full-year forecast is 52.1 billion yuan.

CNOOC, the nation’s dominant offshore oil and gas producer with no downstream operations, is expected to report on Thursday a first-half net profit of 10.1 billion yuan, a turnaround from a 5.53 billion yuan loss in the year-earlier period. The full year forecast is 21.6 billion yuan.

Analysts have different views on the outlook for oil prices in the second half.

“The big energy story of 2017 is surging [oil and] gas demand. We believe both stories will push energy prices higher in the year’s second half,” Jefferies’ head of Asia oil and gas equity research Laban Yu wrote in a note.

The big energy story of 2017 is surging [oil and] gas demand
Laban Yu, Jefferies’ head of Asia oil and gas equity research

Yu forecast crude oil demand from China – the world’s second largest oil consuming nation – to rise 6.9 per cent this year from last year, with 5.9 per cent year-on-year growth already recorded in the year’s first seven months.

He noted the growth rates are double those projected by the International Energy Agency which represents 29 major oil consuming nations, which he said will draw down inventories to support crude prices going higher.

But Sanford Bernstein’s senior analyst Neil Beveridge, who early last month slashed his oil price forecast for this year from US$60 a barrel to US$50, and that for next year from US$70 to US$50, is more cautious.

Although global inventories have dropped in the past two months, stock still is higher than at the beginning of the year and much above the long term average, he noted.

“With IEA revising down 2017 demand, Libya and Nigeria ramping up production and OPEC increasing exports, the inventory draw we have seen may prove to be short lived,” Beveridge wrote in a recent note. “In the meantime, oil prices look range bound.”