Sinopec net hit by lower crude prices

Oil refiner says that profit declined by 30 percent in 2014 due to global trends

China Petroleum and Chemical Corp, or Sinopec, Asia's biggest oil refiner, saw its net profit plunge by 30 percent last year due to the continued slump in global crude oil prices since June, the company said on Sunday.

Sinopec also issued a profit warning for the first quarter of this year and said the negative impact will continue as margins took a hit from the high-cost crude purchased earlier.

The anticipated profit decline of energy giants is expected to hit the overall performance of State-owned enterprises, as Sinopec, together with China National Petroleum Corp, the country's largest oil and gas producer, are the profit mainstays.

According to data provided by the Ministry of Finance, SOEs posted 255.66 billion yuan ($41.25 billion) of profit for the first two months, down 21.5 percent over the same period last year.

During the same period in 2014, the SOEs' profit rose 2.8 percent compared with that of the previous year.

The ministry said the sharp profit drop was caused by the three major oil companies' financial performances that were affected by declining global crude prices. Excluding those oil giants, total profit of SOEs declined only slightly by 1.2 percent year-on-year for the first two months.

According to Sinopec's annual report, its profit for 2014 was 47.43 billion yuan, a 29.4 percent year-on-year fall, its worst performance since the global financial crisis.

In 2008, affected by sharply declining prices and shrinking demand for petrochemical products, Sinopec's net profit declined 47.5 percent year-on-year.

According to Sinopec, its oil and gas production rose by 8.4 percent to 480.22 million barrels of oil equivalent for 2014. Domestic crude oil production remained flat for most of last year, while overseas production increased significantly. The company's natural gas production rose by 8.5 percent to 716.4 billion cubic feet.

The report said domestic refined oil products experienced 11 consecutive price cuts in the second half of 2014, which hit the company's profit from product sales.

Fu Chengyu, chairman of Sinopec, said China will enter a slow growth phase this year even as international crude oil prices are expected to stay low. "The company still faces a challenging operating environment," he said.

Sinopec, as a pioneer of mixed-ownership reform among SOEs, had several big moves in 2014, such as introducing 25 foreign and private companies participating in its retailing businesses, in an attempt to find new growth points.

However, several domestic private oil companies' heads who declined to be named said they were not interested in participating in Sinopec's reform since their companies cannot benefit from it because of "extremely" limited shares.

Lin Boqiang, director of the China Center for Energy Economics Research with Xiamen University, said: "Oil companies should get used to reasonably low crude prices in the long term and make best use of the time to adjust and improve their business mode."

CNPC and CNOOC Ltd are expected to announce their annual results on Thursday and Friday.