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Monday, August 29, 2011

Sinopec to Strengthen Investments in Upstream Assets

- Sinopec to Strengthen Investments in Upstream Assets

Monday, August 29, 2011
Dow Jones Newswires
by Yvonne Lee

China Petroleum & Chemical Corp., or Sinopec, said Monday that it plans to strengthen investments in upstream oil and gas assets and unconventional resources over the next 5-10 years to further diversify its operations.

Chairman Fu Chengyu also said the company will accelerate the development of unconventional gas production, including shale gas and tight gas, in China and will disclose details of the development plan next year.

"We have 20 unconventional gas wells in China at the experimental stage. The output results are encouraging and better than expected," Fu said.

Shares of Sinopec ended up 6.7% at HK$7.49 Monday after Asia's largest refiner by capacity Sunday reported a better-than-expected 12% increase in first-half net profit to CNY41.17 billion from CNY36.80 billion a year earlier due to a stronger contribution from its oil production business, although its refining business recorded an operating loss due to rising fuel costs.

Fu said he is optimistic on the company's refining business prospects in the second half as crude prices will stay in a US $90-US $110 range.

However, he expects the global economy will be gloomy in the next 3-5 years if the U.S government launches a full-fledged third bond-buying program, commonly known as quantitative easing, or QE3.

"We hope to increase our cash level through the issuance of bonds to prepare any arising challenging," he said.

Sinopec said Sunday that it plans to raise up to CNY50 billion through the sale of domestic corporate bonds and the issuance of the convertible bonds in China.

Analysts expect Sinopec's refining margins to improve in the July-December period as crude prices eased recently, although the government price controls will still weigh.

"While the refining division is likely to continue to post a significant loss in the third quarter, we believe the second quarter was likely the peak for refining losses and the division could be close to break even in the fourth if Brent is around $107 or lower," Citigroup analyst Graham Cunningham said.

Copyright (c) 2011 Dow Jones & Company, Inc.

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