Oil firms still less profitable: expert

The fact that the combined 2013 net profit of China's three top oil companies was smaller than that of a single bank reflected the limited profitability of the sector, an expert told the Global Times Sunday.

"Although oil and banking are both dominated by large firms, companies in the oil sector are no match for banks in terms of profitability," Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, told the Global Times.

China's three State-owned oil giants earned a combined net profit of over 250 billion yuan ($40.25 billion) in 2013, but the amount was smaller than the net profit for China's largest bank, according to a report released Friday by news portal NetEase.

Industrial and Commercial Bank of China, the world's largest bank by market value, posted net profit of 263 billion yuan in 2013.

The combined net profit of the three oil giants in 2013 stood at 253.2 billion yuan, according to their financial reports, up 10.9 billion yuan, or 4.49 percent, from 2012.

China National Offshore Oil Corp (CNOOC) released its 2013 financial report Friday, the last of the three oil giants to do so. It posted an 11.3 percent drop in its net profit year-on-year to 56.46 billion yuan.

PetroChina, a listed arm of Beijing-based China National Petroleum Corp (CNPC) and China's largest oil and gas producer by output, reported a net profit of 129.6 billion yuan in 2013, a 12.4 percent year-on-year increase, reversing the fall in the previous year, the company said in its 2013 financial report on March 20.

The country's largest oil refiner, China Petroleum and Chemical Corporation (Sinopec), said its 2013 net profit rose 5.8 percent year-on-year to 67.18 billion yuan, in a March 23 filing with the Shanghai Stock Exchange.

By comparison, Bank of China reported 2013 net profit of 156.9 billion yuan, and for Agricultural Bank of China the figure was 166.21 billion yuan.

"The three oil giants have never been famous for their profitability. The government holds a tight grip on oil product prices, and the general public are very sensitive about gasoline prices, making it difficult for the oil giants to raise prices," Lin said.

Lin also noted that these companies spent lavishly on acquiring new assets last year, which weighed on their balance sheets. "And these acquisitions have not yet been converted into production capacity."

CNOOC attributed the slump in its profits to slowing growth in crude prices and rising operating costs.

In February 2013, CNOOC completed its acquisition of Canadian energy firm Nexen Inc, which has sizable oil sands and shale gas reserves. But analysts have pointed out the difficulties involved in monetizing these assets.

PetroChina also acquired overseas assets last year, buying stakes in oil and gas fields in East Africa and Iraq, while Sinopec bought a stake in an oil and gas company in Egypt.

The companies are also having to overhaul their refineries, given the need to curb pollution, which has increased their operating costs, Zhong Jian, a researcher with Shanghai-based commodity information website cbichina.com, told the Global Times Sunday.

CNPC was also engulfed by a corruption scandal last year, which saw the dismissal of several of its senior executives, while Sinopec was rocked by an explosion at a pipeline repair site in November 2013 that claimed the lives of 62 people and wounded 136.

China made a change to its oil price setting mechanism in March 2013 to better reflect changes in the global oil market, and it now adjusts domestic fuel prices every 10 working days. Previously, prices were only adjusted when international benchmark indexes changed by more than 4 percent over 22 working days.

Zhong said this change has helped refineries to cut costs.