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2015-03-25 20:20:00

SINOPEC WOULD CUT

SINOPEC WOULD CUT

China's Sinopec has become the latest oil major to cut its capital expenditure, after the slide in crude prices knocked nearly one-third from its 2014 profit.

The move mirrors similar plans by the likes of BP and BG Group — two of Europe's biggest energy groups — while domestic rival Cnooc, China's third-largest producer, has also announced spending cuts.

Sinopec, China's second-biggest oil group, on Monday said it would cut 2015 capital expenditure to Rmb136bn ($22bn), down 12 per cent compared with the previous year.

"Because of the low oil prices, the return on investment is quite fickle. We have to cut the capital spending," said Fu Chengyu, Sinopec chairman.

"It will take a long time for international crude oil prices to return to $100 a barrel," he added. "Oil companies have to learn about how to operate and survive in a low oil price environment."

Sinpoec warned on Sunday that it may not turn a profit in the first quarter of 2015, with income "estimated to be in the vicinity of the break-even".

Somshankar Sinha, analyst at Barclays, said of the numbers: "2015 has started off worse than we had expected."

Sinopec booked its first quarterly loss in the final three months of 2014, thanks to the drop in value of crude inventories purchased earlier in the year, when prices were higher.

For the full year 2014, Sinopec's net income dropped to Rmb46.5bn, down nearly 30 per cent from the year before and undershooting Bloomberg analysts' consensus estimate of Rmb53.5bn. Revenues declined 2 per cent year-on-year to Rmb2.8tn.

The planned spending cuts and projected dent in 2015 profits could cast a shadow on Asia's demand for oil services, which has so far been more resilient than other regions thanks to the size and rate of growth of the Chinese economy.

However, Chinese oil companies might "take the opportunity to push ahead with some of their lower cost projects" to increase energy independence, said Richard Bailey, regional director for oil services group DNV GL.

While falling resource prices could bring opportunities for acquisition, Sinopec has so far been cautious.

"Now it is only the time to observe, not to buy [overseas assets]," said Mr Fu. "If we wait for another half a year, some companies might run into financial troubles."

The company's Hong Kong-listed shares closed down 2.1 per cent to HK$6.07 on Monday.

ft.com

Tags: CHINA, SINOPEC, OIL, PRICES

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