In contrast to their Western peers, Chinese companies reported relatively positive results for the third quarter. Leading the way was China's largest refiner, Sinopec SNP, which reported a 124% earnings increase from the year-ago period, thanks largely to the refined product pricing reforms instituted by the Chinese government. At the start of the year, the Chinese government enacted changes to the way it sets prices for refined products to better reflect changes in international crude-oil prices. The new pricing system dramatically improved the profitability of Chinese refiners. In the third quarter last year, Chinese refiners incurred substantial losses as oil prices climbed above $100 per barrel but product prices remained stagnant. This year, refiners raked in profits as product prices moved higher with oil prices. Also benefiting from the new pricing system was Sinopec Shanghai Petrochemical SHI. Year to date, Sinopec Shanghai has recorded profits of CNY 1.59 billion compared with a loss last year of CNY 2.68 billion. The largest of the Chinese state owned oil companies, PetroChina PTR, also saw a benefit from the new pricing mechanism, though the effect was less pronounced because of the company's significant exploration and production operations. PetroChina saw only a 14% decline year to date in profit from the period a year ago despite a 50% drop in oil price realizations during the same time. Refining profits also helped to offset less-than-stellar production gains at PetroChina and Sinopec. PetroChina's year-to-date total production was essentially flat with the period a year before, with oil production falling almost 4% and natural gas production gaining 11%. Sinopec was equally unimpressive, increasing oil production 1.3% and keeping natural gas production flat during the first nine months of the year compared with the period a year ago. The anemic production gains partially explain the motivation for the recent efforts to acquire overseas resources.CNOOC CEO remains the only Chinese state-owned company with prolific production growth. Without the refining operations of its Chinese peers, CNOOC did not see any benefit from the pricing reforms. However, it continued to deliver production gains to offset the fall in oil and gas realizations. During the third quarter, CNOOC's production grew 18.4% from the period a year ago because of gains in Nigeria and offshore China. CNOOC should realize its full-year production target of 225 million-231 million barrels of oil equivalent set at the beginning of the year. Unburdened by the uncertainty of a refining segment, CNOOC could see significant upside from a further rise in oil prices if the Chinese economy heats up later in the year. The other three companies may not be so fortunate. Sinopec indicated refining margins have fallen throughout the year as oil prices have risen. While the new pricing mechanism has led to positive results so far, if oil prices have an extended stay above $80, refining margins may deteriorate further.
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China Petroleum & Chemical Corporation, PetroChina Company, Ltd., CNOOC, Ltd., CNOOC, Ltd., Sinopec Shanghai Petrochemical Company Limited, PetroChina Company, Ltd., China Petroleum & Chemical Corporation
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