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Sinopec (SNP) Posts First Half-Yearly Loss on Weak Operations

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China Petroleum and Chemical Corporation (SNP - Free Report) , also known as Sinopec, reported first-half 2020 turnover and operating revenues of 1,034,246 million yuan, down 31% year over year. Moreover, it reported operating loss of 21,501 million yuan for the first half versus profit of 49,138 million yuan in the year-ago period.

Energy demand destruction caused by the coronavirus pandemic affected all businesses segments, in turn resulting in first-ever half-yearly loss. Lower production and realized commodity prices affected its upstream segment and decreased throughput volumes affected refining operations. Decreased refined oil product sales volume, and price affected marketing and distributions. The chemicals business was impacted by lower sales volumes.

Second-Quarter Results

Notably, it reported loss per American Depositary Receipt (ADR) of 47 cents for the second quarter against a profit of $1.94 a year ago.  

Moreover, revenues declined from $114,556 million in the year-ago quarter to $67,559 million.

Dividend

The company’s board of directors declared an interim dividend of 0.07 yuan per share, reflecting a 41.7% decline from the year-earlier period.

Operational Performance

Exploration and Production: For the first half of 2020, Sinopec’s crude oil production fell 1% year over year to 140.27 million barrels. Nonetheless, natural gas volumes increased 0.6% year over year to 512.41 billion cubic feet. Domestic crude oil production remained unchanged year over year at 124.05 million barrels, while overseas volumes fell 8% year over year to 16.22 million barrels. Total oil and gas production fell 0.4% year over year to 225.71 million barrels of oil equivalent.   

Segmental operating loss for the first half was recorded at 6,002 million yuan against operating profit of 6,243 million yuan in the year-ago period due to lower production and realized commodity prices in the wake of the coronavirus pandemic.

Refining: The company’s Refining business saw a 10.5% year-over-year fall in refinery throughput to 110.95 million tons. It produced 67.19 million tons of petroleum products, down 14.9% from the prior-year level.

Due to lower throughput volumes, the segment reported operating loss of 31,689 million yuan versus the year-ago profit of 19,090 million yuan.

Marketing and Distribution: The segment sold 107.03 million tons of refined oil products, down 15.7% year over year.

From this segment, the company generated operating profit of 8,664 million yuan, down 41.1% from the year-ago period’s 14,709 million yuan owing to demand destruction caused by the pandemic, which in turn affected refined oil products sales volume and price.

Chemicals: The segment recorded an operating profit of 3,194 million yuan for first-half 2020, down 73.1% year over year owing to lower sales volume and product prices.

Cost and Expenses

Total operating expenses for the first half were recorded at 1,055,747 million yuan, down from 1,449,858 million yuan in the year-ago period. Purchased crude oil, products and operating supplies and costs were 837,710 million yuan, down from the year-ago level of 1,207,182 million yuan. Moreover, SG&A costs declined to 24,418 million yuan from 24,765 million yuan in the comparable period of 2019. However, exploration costs rose to 4,465 million yuan from 4,347 million yuan in the first half of 2019.

Capital Expenditure

Capital expenditures totaled 44,990 million yuan, up from 42,878 million yuan in the first half of 2019. Of the total amount, 20,470 million yuan was spent on exploration and production projects. Sinopec spent 9,536 million yuan on the Refining segment, while the Chemical Business segment was allocated 6,117 million yuan. The company has set aside 8,646 million yuan for the Marketing and Distribution segment.

Outlook

The Weirong shale gas project’s first phase is expected to come online in December 2020. Sinopec used its expertise amid the coronavirus pandemic, and switched to boost production of health-care and medical materials.

It expects the global economy to experience instability in the second half of the year. However, energy demand in China will likely witness a fast recovery.

The company intends to maintain crude output but boost natural gas production. The integrated energy firm projects production of oil for the second half at 138 million barrels and natural gas at 580.5 billion cubic feet. Over the period, the company expects crude processing volumes of 130 million tons. In the domestic market, Sinopec plans to sell 92 million tons of refined oil products. Additionally, it will likely produce 6.1 million tons of ethylene.

Zacks Rank & Stocks to Consider

Sinopec currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked players in the energy space include Royal Dutch Shell plc (RDS.A - Free Report) , Concho Resources Inc. (CXO - Free Report) and EOG Resources, Inc. (EOG - Free Report) , each holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shell’s bottom line for 2021 is expected to rise 112.5% year over year.

Concho Resources’ bottom line for 2020 is expected to rise 34.4% year over year.

EOG Resources’ sales for 2021 are expected to rise 18.8% year over year.

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