The world’s biggest refiner, China Petroleum & Chemical Corp., known as Sinopec, outperformed its domestic state-run rivals in the first half of the year due to value generated from its refining business, reporting 19.9 billion yuan ($3 billion) in profit for the first half of the year, according to an August 28 filing with the Hong Kong stock exchange. While that’s down 22 % from the same period in 2015, it’s more than double its net income in the second half of last year, when it posted its weakest earnings since 2002.
Sinopec’s rival, PetroChina Co., the country’s biggest upstream oil and gas producer, saw net income drop to 531 million yuan in the first half of the year, a 98% decline, even after booking a 24.5 billion yuan gain from selling a Central Asian gas pipeline network. CNOOC Ltd., China’s largest offshore explorer, reported a 7.74 billion yuan loss, mainly from a charge on the value of its Canadian oil sands assets.
A slump in crude prices benefits fuel makers like Sinopec as their supply costs fall, though the company is still vulnerable to the collapse as it’s also the country’s third-biggest oil and gas producer. Sinopec processed 115.9 million tons of crude into fuels during the first half of the year. That’s roughly equal to almost 4.67 million bpd, according to Bloomberg calculations. PetroChina refined the equivalent of nearly 2.66 million bpd, the company said in its release last week.
Sinopec will raise refining throughput in the second half of the year to 120 million tons, up 3.5% from the first six months, the company said on August 28.
China’s oil refiners earlier this year got a boost from a government policy that halts retail fuel price adjustments when oil falls below $40 a barrel, putting a floor under gasoline and diesel prices while crude continued to drop. The rule boosted margins during Sinopec’s first quarter, when net income tripled from a year ago to 6.66 billion yuan. China’s state-run oil giants have been cutting back on spending, mainly impacting their exploration and production operations. The companies are relying more on overseas crude and natural gas to sustain output as production dwindles at home from aging, high-cost oil fields.
Sinopec reduced capital expenditures in the first half of the year by more than 40% from the same period in 2015 to 13.5 billion yuan. PetroChina’s fell 17.5% to 50.9 billion yuan. CNOO’s spending for the period dropped 33% to 22 billion yuan.