China Petroleum & Chemical Corp (Sinopec), Asia's largest oil refiner, yesterday posted a nearly one-third increase in net profits last year. But the result still didn't live up to market expectations as the disposal of low-efficiency assets offset higher prices for oil and petrochemical products.

The company also saw its proven oil and gas reserves fall by 3.5 percent to 3.74 billion barrels of oil equivalent after it reduced holdings in the Xihu Trough, a large offshore oil and gas project it is developing with CNOOC, Royal Dutch/Shell and Unocal.

Sinopec also said Monday it plans to buy lubricant firm Jinzhi Company, which is owned by a wholly-owned subsidiary of Sinopec, for 230 million yuan (US$27.78 million) in cash.

Sinopec booked a net profit of 21.6 billion yuan (US$2.6 billion), rising 32.4 percent year-on-year from 16.4 billion yuan 2002. Full-year sales rose 28.4 percent to 443.1 billion yuan (US$53.6 billion).

The result was lower than the average estimate of 22 analysts polled by Thomson Financial of 23.4 billion yuan (US$2.8 billion).

"The results were below market expectations, and were poor compared to PetroChina's, but Sinopec should outperform PetroChina and CNOOC over the coming year," said Vincent Koo, managing director at Kingsway Fund Management.

Koo said key concerns for mainland oil refiners this year would be global terrorism, the US Presidential Elections, interest rates and, perhaps most significantly, the global price of oil.

"The results fell short of the market forecast because Sinopec wrote off some 2 billion yuan (US$241.8 million) of small low-efficiency refinery and petrochemical assets in the fourth quarter which led to a profit slump during the quarter," said an analyst with a Beijing-based investment bank.

"Sinopec disposed the non-performing assets last year as high profits could help offset the huge costs. And the move will reduce the company's costs in the coming years," said the analyst.

Over the year, Sinopec paid 1.2 billion yuan (US$145.1 million) to lay off about 21,000 workers and transfer 11,000 more to its parent company.

Price hikes in oil and petrochemical products helped Chinese oil companies gain windfalls last year. PetroChina and China National Offshore Oil Corp, the largest and third-largest domestic oil companies, reported 48 percent and 31.9 percent profit increases for last year.

Sinopec Monday said its realized price for crude oil reached US$27.56 a barrel from US$22.42 a year earlier. The refinery margin grew by 3.28 percent to US$4.09 a barrel.

Still, operation costs for Sinopec rose over 28 percent to nearly 406 billion yuan (US$49.1 billion).

(China Daily March 30, 2004)