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China Petroleum and Chemical Corporation (SNP - Analyst Report), also known as Sinopec, reported first-half 2013 net income of 30.281 billion yuan ($4.85 billion), up 23.6% year over year. Earnings per share of 0.246 yuan ($3.94 per ADS) jumped 17.7% year over year, as per the International Financial Reporting Standards (“IFRS”).

The improvement was mainly supported by outstanding results in oil and gas exploration on domestic growth in five key areas, including Tarim Basin, the western rims of the Junngar Basin, the Ordos Basin, the Sichuan Basin and the Xihu depression.

Revenues in the first quarter improved 5.0% to 1,415.244 billion yuan from 1,347.85 billion yuan in the prior year.

Operational Performance

During the six-month period ending Jun 30, 2013, Sinopec’s crude oil production grew 1.4% year over year to 165.4 million barrels, while natural gas volumes surged 11.8% to 324.1 billion cubic feet. Domestic crude oil production increased 1.1% year over year to 153.7 million barrels, while overseas volumes increased 5.8% year over year to 11.8 million barrels.

Total oil and gas production expanded 3.8% to 219.5 million barrels of oil equivalent.

A sharp decline in crude oil prices led to a 23.5% fall in the Exploration and Production (E&P) segment’s operating profit from the prior-year period. The figure came in at 30.9 billion yuan (US$4.95 billion).

The company’s Refining business recorded refinery throughput of 115.4 million tons (up 5.2% year over year). It also produced approximately 69.8 million tons of oil products, representing a 5.8% improvement from the year-ago quarter.

The Marketing and Distribution segment sold 88.1 million tons of refined oil products, reflecting a 6.5% year-over-year increase.

The output of ethylene from the Chemicals segment was 4.841 million tons, down 0.6% from the year-ago level.

Capital Expenditure

Capital expenditures for the first half of 2013 totaled 51.975 billion yuan, of which 24.996 billion yuan was spent on exploration at key oilfield projects in south Hubei, shallow heavy oil in west Shengli, new blocks in the Tahe Oilfield, Yuanba and the Daniudi gas fields, and the Shandong LNG project.

In the Refining segment, Sinopec spent 7.710 billion to upgrade oil product quality and to restore the project for processing lower quality crude oil.

The Marketing and Distribution segment expended 11.612 billion yuan mainly for the construction and acquisition of service stations along expressways and in major cities as well as for building refined oil product pipelines and depots.

Capital expenditures in the Chemicals segment totaled 5.283 billion yuan, mainly due to the construction of the Wuhanethylene plant, the Hubei syngas to MEG project and the Hainan aromatics project.

The company also spent 2.374 billion yuan for the company’s R&D facilities and IT projects.

Zacks Rank

Sinopec currently retains a Zacks Rank #3 (Hold). However, there are other Zacks Ranked #1 (Strong Buy) stocks in the oil and gas sector – Range Resources Corp. (RRC - Analyst Report), Susser Petroleum Partners LP (SUSP - Snapshot Report) and Dril-Quip, Inc. (DRQ - Analyst Report)  – that appear more rewarding in the short term.
 

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