24.03.2014 • NewsDede WillamsPricingoil and gas

Sinopec to Cut Spending After Earnings Drop

After reporting a 35% earnings decline for the 2013 fourth quarter, Chinese oil and petrochemicals giant Sinopec said it would cut capital spending to just under $26.2 billion in this year, down from $27.4 billion last year.

The state-owned group last month unveiled a plan to sell up to 30% of its marketing and distribution business, which analysts believe could raise $10-$20 billion. The business, which includes convenience stores, petrol stations, as well as oil-products pipelines and storage facilities, saw an 18% profit drop in 2013.

Observers said Sinopec's strategy to improve efficiency and thus profitability mirrors the current trend in the global oil industry and echoes plans by rival Chinese energy firm PetroChina - which a few days earlier said it would cut capital spending for the second consecutive year.

China brought in a more flexible fuel pricing mechanism in March, the first major revamp in four years, to help avoid fuel shortages and curb consumption. But the country's refiners are still unable to fully pass on higher crude costs to consumers because the government controls oil prices to help to curb inflation.

Sinopec's refining division returned to profit in 2013 after a loss in 2012, although this was negatively offset by a decline in operating income from exploration and production arm partly, which partly reflected lower international oil prices.

Operating profit in the chemicals division fell 26% due to an increase in domestic production capacity and lower selling prices.

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