Sinopec to Boost Expansion Abroad After Profit Surges to Record

China Petroleum & Chemical Corp., Asia’s biggest refiner, plans “rapid” overseas expansion to secure supplies after profit reached a record on relaxed state fuel-price curbs and a recovery in Chinese demand.

Net income at Sinopec, as China Petroleum is known, rose at least tenfold to 22 billion yuan ($3.22 billion) in the second quarter, according to calculations made by Bloomberg by subtracting first-quarter results from six-month earnings announced yesterday. Profit for the first nine months may increase by more than 50 percent, the Beijing-based company said in a statement to the Shanghai stock exchange.

The gain contrasts with earnings declines at Royal Dutch Shell Plc and Exxon Mobil Corp., the world’s biggest oil companies, after the global recession cut consumption in the U.S. and Europe. Sinopec will invest in oil and gas fields overseas and expand refining ventures with foreign partners, while focusing on cost reduction as it expects oil prices to rise in the second half, Chairman Su Shulin said in the statement.

“Sinopec’s main business is refining and it needs to increase its oil reserves and reduce its reliance on other oil producers,” said Larry Grace, an independent oil analyst based in Hong Kong. “There’s a government directive to increase overseas oil and gas assets.”

Sinopec, supplier of 80 percent of China’s fuel needs, has gained 48 percent in Hong Kong trading this year and is the best performer on the Bloomberg World Oil & Gas Index. PetroChina Co., the world’s most valuable company, has climbed 27 percent, while Shell and Exxon have fallen as lower fuel demand and prices reduced profit.

Profit Increase

Profit rose more than 13-fold from 1.62 billion yuan a year earlier, calculated by subtracting first-quarter profit Sinopec reported in April last year from the restated earnings for the first six months of 2008 announced yesterday. Based on unrevised figures, earnings rose 10 times from 2.2 billion yuan. Sinopec didn’t say if the restatement included a change in the first- quarter profit reported last year. Spokesman Huang Wensheng couldn’t be reached for comments on his mobile phone.

The earnings beat the 15.8 billion-yuan median estimate of four analysts and was the highest quarterly profit since Sinopec first sold shares in Shanghai in 2001.

“These were very good figures and mainly a result of the new oil producing pricing mechanism and the company cutting costs,” said Michael Yuk, an analyst at Sun Hung Kai Financial in Hong Kong. “The prospects for the company are good as demand picks up.”