China's second largest oil and gas producer, the China Petroleum and Chemical Corporation or Sinopec, yesterday announced a better-than-expected 9 per cent increase in its interim net profit.

Beijing Morning Post reports that Sinopec's impressive results are in line with the industry. PetroChina, the country's top refiner, earlier posted a turnover of nearly 80.7 billion yuan (10.13 billion USD) last week.

Another Chinese oil giant, the China National Offshore Oil Corp (CNOOC) is expected to post earnings of more than 15 billion yuan (1.88 billion USD) today.

Thanks to the soaring global oil prices, China's three major oil refiners are expected to reap more than 116 billion yuan (14.56 billion USD) in the first half of the year.

Better-than-Expected Results

PetroChina realized a net profit of 80.68 billion yuan in the first half of 2006, a 29.4 percent increase year-on-year. It is now considered one of the most profitable companies on the Hong Kong stock exchange. Sinopec has followed suit, with an unanticipated net profit of 20.679 billion yuan, a 14.6 percent year-on-year increase.

Although CNOOC has not yet released its results but prime brokers like Goldman sacks, Lehman Brothers and Merrill Lynch have all expressed their confidence in its performance. They expect CNOOC to make between 15.49 and 16.36 billion yuan in the first half, growing over 30 percent.

Their confidence can be attributed to the 36 price jump in the international oil market, which has significantly boosted the earnings oil major oil players.

The stocks for PetroChina, Sinopec and CNOOC inched up 31%, 16% and 18% respectively.

Industry insiders believe China's domestic oil companies will grow throughout the year

16 Billion in Excess Profit Tax

Despite the optimistic market environment, China's oil giants faced harsher restrictions this year. From March, China began levying an excess profit tax on oil exploration in a bid to regulate the domestic oil exploration market.

PetroChina, the one focuses most of its business on oil exploration paid 10.3 billion yuan in the excess profit tax in the first half. Sinopec was taxed 3.7 billion yuan, while CNOOC is expected to pay 2 billion yuan. Altogether, the three major domestic oil players will pay almost 16 billion yuan in tax.

The tax does not appear to have impacted significantly on the companies' performance. PetroChina president Jiang Jiemin said the companies have been able to offset their costs thanks to the two oil price increases in the domestic market.

Loss in Refining

During the first half of 2006, PetroChina reported a 13.889 billion yuan loss in refining and processed oil sales, compared with the 5.949 billion yuan loss posted last year.

The second leading player, Sinopec, has also seen extended losses in its refining sector. It will post 16.61 billion yuan in the red, compared to the 1.296 billion yuan loss it reported for the same period last year.

The profits in the oil refinery industry have dropped sharply impacted by factors such as tension between demand and supply, and the incomplete price mechanism for processed oil in domestic market.

Sinopec expects domestic refineries to face continuing pressure from rising oil prices on the international market. Market competition will also increase by the end of the year, after China fully implements its obligations as a member of the World Trade Organisation (WTO) and completely opens its wholesale market for processed oil.

Editor: Yan