Sinopec Quarter Profit Nearly Doubles, Sees Tough '09

Top Asian oil refiner Sinopec posted a near doubling in quarterly profit on Sunday thanks to state handouts and a steep decline in crude oil prices that restored refining profits, but it warned of a challenging 2009 amid the economic downturn.

Sinopec, the world's second-largest refiner after Exxon Mobil, recorded a first fall in annual profit in 7 years, with full-year net profit almost halved from 2007, as record high crude prices in the first half and low state-capped fuel prices hammered margins.

Sinopec expects international oil prices to fluctuate at a relatively low level this year on the back of falling demand.

"The demand growth for refined oil products in the domestic market is expected to slow down," the company said in a statement. "Due to the combined pressure of slower economic growth and a downward cyclical trend, the chemicals business will be facing more challenging situations."

Analysts say the company should see a turnaround this year after crude prices dropped sharply in the fourth quarter and Beijing moved this week to hike fuel prices, guaranteeing higher and more stable profit margins for refiners.

In a separate statement on Sunday, the firm said its net profit for the first quarter would rise by more than 50 percent compared to the same period a year ago, boosted by improved refining economics because of the sharp fall in crude oil prices.

For most of last year, state-owned Sinopec was forced to take losses at its refining operations as it had to supply the world's second-largest oil consuming nation with fuel at low prices set by a government wary of inflationary pressures, even when crude oil prices hit a record $147 per barrel in July.

The firm said it received subsidies from the government amounting to 50.3 billion yuan ($7.36 billion) in 2008, about 70 percent more than its net profit for the year.

Sinopec, Asia's No.2 oil and gas producer after PetroChina, said it aims to produce 42.4 million tons of crude oil and 10 billion cubic meters of natural gas this year, versus 41.8 million tons of crude oil and 8.3 billion cubic meters of natural gas in 2008.

It aims to process 184 million tons of crude this year, versus 169 million tons in 2008, and will set aside 111.8 billion yuan for capital expenditure in 2009, versus 107.3 billion yuan in 2008.

Sinopec had flagged to investors that its 2008 net profit would drop by about 50 percent.

October-December net profit was 13.3 billion yuan, versus 6.71 billion yuan a year earlier, according to Reuters calculations, beating a forecast for 7.94 billion yuan from 15 analysts polled by Reuters Estimates.

Full-year net profit fell to 29.7 billion yuan from 56.5 billion yuan in 2007.

PetroChina posted a bigger-than-expected 39 percent drop in its fourth-quarter net profit, hit by asset writedowns amid a sharp drop in crude oil prices.

Offshore oil specialist CNOOC, the smallest of China's energy triumvirate, reports its earnings on Tuesday.

Sinopec shares are up 29 percent this month, helped by the fuel price hike, while PetroChina  has gained 20 percent and CNOOC is up 23 percent.

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