The three major oil companies in China achieved a “good start†in the first quarter. Both China National Petroleum Corporation and China Petroleum & Chemical Corporation have achieved a good performance in their net profit growth. CNOOC also achieved an increase of nearly 32% in oil and gas production.
Industry insiders expect that the performance of the three major companies in the second quarter will maintain a good momentum of growth. Domestic market demand, international crude oil price trends, and domestic refined oil price adjustment are the main factors affecting the performance of oil companies.
The three major companies have a good start to the first quarter
In accordance with international accounting standards, PetroChina achieved a net profit of 32.5 billion yuan in the first quarter, an increase of 71% over the same period last year. Sinopec's net profit increased by nearly 40% year-on-year to 15.8 billion yuan. Although CNOOC, which has not yet returned to the A-share market, did not publish its first-quarter results, its net oil and gas production reached 67.3 million barrels of oil equivalent, a substantial increase of 32% year-on-year.
Analysts pointed out that the high international crude oil price in the first quarter of the year and the increase in demand for the domestic oil and petrochemical market as a result of China’s economic recovery are favorable factors are two major factors in the sharp increase in profits of PetroChina and Sinopec.
Benefiting from the global economic recovery, international crude oil prices have been rising continuously since mid-February of this year. In March, the price of crude oil has remained above 80 US dollars per barrel, which is more than double the price of crude oil that was bottomed by the international financial crisis a year ago. The demand for domestic petroleum and petrochemical markets recovered significantly. In the first quarter, the apparent consumption of domestic refined oil products increased by 16.2% year-on-year, and the apparent consumption of chemical products increased by more than 8%, which led to the improvement of the downstream performance of oil companies.
Yin Xiaodong, chief analyst of the petrochemical industry at CITIC Securities, said that in the first quarter, PetroChina's performance growth mainly benefited from the rise in international oil prices, while Sinopec was more dependent on the increase in the performance of its chemical and sales sectors.
As China’s largest crude oil producer, PetroChina produced 210 million barrels of crude oil in the first quarter, which was a 2.1% increase year-on-year. Crude oil prices rose by nearly 89% from the same period last year to 70 US dollars per barrel.
Compared with the sharp increase in profits of several other sectors, the profit of Sinopec's refining segment fell in the first quarter. Wang Xinhua, chief financial officer of Sinopec, said that this was mainly due to the inadequacy of domestic refined oil price adjustments. In the first quarter, international oil prices continued to rise, and domestic refined oil prices have not been adjusted accordingly. Sinopec's refining segment has achieved only marginal profit.
Our country raised the price of refined oil products for the first time on April 14. Wang Xinhua said that after the price adjustment, the refining segment's operating conditions have improved, but after the price adjustment, the international oil price continued to rise on the basis of the original, and the profitability pressure of the current refinery is still relatively large.
CNOOC, whose main business is focused on the exploration and development of upstream oil and gas resources, is most significantly affected by international oil prices among the three major companies. As the production and sales volume of oil and gas and the realized price of oil and gas both increased significantly, the total unaudited revenue of CNOOC in the first quarter increased by 118.5% year-on-year.
Second quarter performance is expected to continue to grow
Xiao Xiaofeng, a petrochemical analyst at China Merchants Securities, believes that whether the international crude oil price trend in the second quarter and the domestic refined oil price can be adjusted in time will be the major factors affecting the oil company’s profitability.
Feng Lianyong, a professor at the China University of Petroleum, said that according to the refined oil pricing mechanism, if the international crude oil price is higher than 80 US dollars per barrel, the processing profit rate will be deducted until the refined oil price is calculated on the basis of zero processing profit. Therefore, if international oil prices continue to rise in the second quarter, the refining business will suffer from greater operating pressure.
Wang Xinhua said that it is expected that China's economy will maintain steady growth in the second quarter, and the overall macro-environment of the oil and petrochemical industry will be more favorable. However, international oil prices continue to rise, and whether domestic refined oil prices can be adjusted in a timely manner in accordance with the improved pricing mechanism will increase the uncertainty of Sinopec's refining segment. In addition, with the large-scale production of low-cost ethylene in the Middle East and other regions, the price competition faced by the chemical sector will become more intense.
Xiaofeng Xiao believes that the implementation of refined oil pricing mechanism this year will not deviate greatly from the price and time, so the oil refining industry is less likely to suffer large losses. He estimated that the average international crude oil price will reach 85 US dollars per barrel for the whole year, and the oil company will not experience a loss situation at this price point.
Yin Xiaodong predicts that the market will enter the peak season for consumption in the second quarter, benefiting from the recovery of the domestic economy and the recovery of the global economy, and the prices of petroleum and petrochemical products will continue to show good momentum. It is expected that the performance of major oil companies in the second quarter is expected to continue to grow.
He said that considering that CNOOC’s output growth this year is more optimistic and the international crude oil price is in a high position, CNOOC is expected to achieve faster performance growth.
Optimizing the industrial chain is the main direction for future development
Xiaofeng Xiao believes that as a result of excellent performance in the upstream, sales and chemical sectors, CNPC performed well in the first quarter. This is mainly due to the comparatively large scale of the exploration and production business of PetroChina and the development momentum of refined oil sales business.
For nearly 80% of Sinopec, which imports crude oil from processing, the impact of international crude oil prices on its overall performance is particularly significant. Xiaofeng Xiao believes that under the high oil prices, Sinopec is under greater cost pressure, and it is recommended that overseas oil resources be expanded to reduce the pressure on refining costs.
In late March, Sinopec announced the acquisition of an equity interest in an oil and gas block in Angola held by the parent company China Petrochemical Corporation, which was regarded as an important measure to further expand the scale of the upstream business. Sinopec Group also recently acquired equity in the Canadian oil sands project at a price of nearly 4.7 billion Canadian dollars to strengthen the development of unconventional oil and gas resources.
With the release of domestic natural gas market potential, several major oil companies have placed natural gas in an important strategic position.
Due to the commencement of production of the Puguang Gas Field and the commissioning of the Sichuan-East Gas Pipeline, Sinopec’s natural gas production increased by 41% in the first quarter, becoming a major source of profit growth in the upstream segment.
Wang Xinhua said that this year's Puguang Gasfield production will reach 4 billion cubic meters, and will reach 8 billion cubic meters next year. By then, the efficiency and return of the Puguang Gas Field will increase significantly, and the profits of the entire upstream plate will be greatly improved.
PetroChina always regards natural gas as an important strategic direction for the development of its main business. In the first quarter, PetroChina's natural gas production increased by 16.5% year-on-year, continued to maintain double-digit growth, and reached an agreement with Shell to acquire Australian energy companies to enter the CBM development and liquefied natural gas production in Australia. CNOOC also achieved a 41% growth in net natural gas production, and signed a long-term import agreement for LNG with the British Natural Gas Group.
Wang Xinhua said that the direction of China's natural gas price reform is to form a reasonable price for natural gas prices and alternative energy prices, and adjust with changes in alternative energy prices, and gradually establish a pricing mechanism that reflects the degree of resource scarcity and market supply and demand. "The reform will be gradually put in place according to China's economic and domestic spending power."
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