World’s 2nd Largest Oil Company Sees Huge Drop In Profit

Authored by Irina Slav via OilPrice.com

Sinopec reported a 76-percent drop in its latest quarterly profit for October-December 2018, which is the lowest since at least the third quarter of 2016, Reuters reports, citing the company.

However, the bad news was not a result of the company’s normal operations but of derivatives trading losses incurred by its trading arm Unipec. The division booked net losses of US$690 million (4.65 billion yuan) in the fourth quarter of last year on bad oil hedging bets. This pressed the parent company’s net result to US$461.57 million (3.1 billion yuan) despite a 33-percent increase in revenues during the three-month period, as calculated by Reuters.

In refining specifically, China’s top refiner reported even worse profit figures, according to Bloomberg calculations. This fell by as much as 90 percent in the fourth quarter

For the full year, however, things looked much better in the profit department, with Sinopec reporting a 23-percent annual rise and solid growth in revenues. The improvements, like the better results of other oil companies, came on the back of higher oil prices.

Now the company plans to spend more to boost oil production as instructed by Beijing. This year, however, production will not grow but decline from 2018, projected at 288 million barrels, of which 39 million barrels from projects abroad. Last year, Sinopec pumped 288.5 million barrels, of which 39.6 million barrels from projects abroad.

To this end, Sinopec’s 2019 capital spending will be the highest in five years at US$20.3 billion (136.3 billion yuan), versus US$17.58 billion (118 billion yuan) spent last year. Boosting local production of oil and gas is a priority for China’s government as demand for the commodities rises and so do imports.

No wonder then that 44 percent of the total 2019 budget will be allocated for exploration and production, with the focus being on boosting natural gas production to 1.02 trillion cubic meters from 977 billion cubic meters in 2018.