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China Petroleum and Chemical Corporation (SNP - Analyst Report), also known as Sinopec, reported full year 2012 net income of 63.50 billion yuan (US$10.05 billion) and earnings per share of 0.704 yuan ($11.14 per ADS) as per the Chinese reporting standards. The reported figure beat the Zacks Consensus Estimate of 10.59 per ADS thanks to the growth in both oil and gas reserve and production.

However, earnings dropped 11.4% year over year mainly on account of slower domestic economic growth in the first half of the year.

Full-year revenues improved 11.2% to 2,786.0 billion yuan from 2,505.7 billion in the prior year.

Operational Performance

During the 12-month period ending Dec 31, 2012, Sinopec’s crude oil production expanded 2.0% year over year to 328.3 million barrels, while natural gas volumes spiked 15.7% to 598.0 billion cubic feet. Domestic crude oil production increased 1.1% year over year to 306.6 million barrels though overseas volumes increased a considerable 18.1% year over year.

Total oil and gas production surged 4.9% to 428 million barrels of oil equivalent. For 2013, Sinopec − Asia's largest refiner and China's second largest oil and gas company − plans to produce 46.4 million tons of crude oil and 18.1 billion cubic meters of natural gas.

The company’s Refining business recorded refinery throughput of 221.31 million tons (up 1.8% year over year). It also produced approximately 133 million tons of oil products, which represents a 3.9% improvement from the previous year. For 2013, Sinopec plans to refine 238 million tons of crude oil.

The Marketing and Distribution segment sold 173.15 million tons of refined oil products, reflecting a 6.7% year-over-year increase.

The output of ethylene from the Chemicals segment was 9.452 million tons, down 4.5% from the year-ago level.

Capital Expenditure

Capital expenditures for 2012 totaled 168.968 billion yuan, of which 79.071 billion yuan was spent on exploration projects in key oilfields, including Shengli shallow water oilfield, northwest Tahe Oilfield, Ordos oil and gas fields, natural gas exploration and development in Sichuan and the Shandong liquefied natural gas (LNG) project.

In the Refining segment, Sinopec spent 32.161 billion mainly on expansion projects.

The Marketing and Distribution segment expended 31.723 billion yuan for the construction and acquisition of gas stations on highways, in important cities and newly planned regions. Capital expenditures in the Chemicals segment totaled 23.616 billion yuan, mainly due to the construction of the Wuhan ethylene plant, the Yanshan butyl rubber project, the Yizheng butylene glycol project as well as for the Anqing acrylonitrile and Luoyang polypropylene projects and the Hainan aromatics.

As of Dec 31, 2012, the company’s proven reserve of crude oil and natural gas was 3.964 billion barrels of oil equivalent, down marginally by 0.05% from the year-earlier period.

Sinopec remains highly exposed to government directed price controls owing to its large downstream refining and petrochemicals operations compared to its arch rival PetroChina Ltd. (PTR - Analyst Report) − China's largest listed oil company by capacity. Chinese biggies are making deeper inroads these days into the international energy markets with the specific aim of meeting domestic demand as well as balancing the adverse effect of the price control. As the world's second-largest economy, China has a huge energy requirement.

Sinopec and its parent company − China Petrochemical Corp. or Sinopec Group − expect to form a joint venture to get hold of overseas oil and gas assets owned by the parent for about $3 billion. The approximately $1.5 billion project is mainly intended to strengthen its reserves and production.

In this connection, it is worth mentioning that on Feb 25, Sinopec inked a $1.02 billion deal with Chesapeake Energy Corp. (CHK - Analyst Report). This gives the second-largest Chinese energy producer a 50% share in 850,000 acres in the Mississippi Lime play in northern Oklahoma.

Again, China’s largest offshore oil producer, CNOOC Ltd. (CEO - Analyst Report) closed its $15.1 billion acquisition agreement with Canada’s Nexen Inc. in February. This deal marks a significant milestone for CNOOC as it gets hold of Nexen’s biggest reserves in the Canadian oil sands.

Sinopec currently retains a Zacks Rank #4 (Sell).
 

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