Unprofitable upstream operations the main culprit: experts
The nation's three State-owned oil giants saw their financial performance erode in the first half, reflecting low world oil prices and unprofitable upstream operations.
It's a situation that experts said calls for diversification and reorganization to survive.
China Petroleum & Chemical Corp's (Sinopec's) net profit slid 21.6 percent year-on-year to 19.9 billion yuan ($2.98 billion), according to its interim statement posted on the information disclosure website cninfo.com.cn on Monday.
The other two oil giants fared relatively badly too, a media report said.
CNOOC Ltd lost about 7.74 billion yuan in the first half of 2016, compared with a gain of 14.7 billion yuan in the same period last year. While PetroChina Co made a profit of only 531 million yuan, compared with 25.4 billion yuan a year earlier, domestic news portal jiemian.com reported on Monday.
Plunging global crude prices lie behind the dismal figures, Li Li, director of research at Shanghai-based consulting firm ICIS China, told the Global Times on Monday.
During the first half, the global prices for oil measured by Platts Dated Brent, a benchmark for crude oil, averaged $39.81 a barrel, down 31.2 percent year-on-year, said Sinopec's semiannual report.
"Falling oil prices have hit the petroleum industry's upstream sector, which is oil exploration and production (E&P)," Li told the Global Times Monday.
At the same time, it's been a boon for the downstream sector, which refines oil into such products as gasoline and diesel, she said.
This is why oil refiners such as Sinopec are doing relatively better than the companies that concentrate on the upstream sector, experts said.
For example, PetroChina reported a loss of 34 billion yuan in the E&P sector in the first six months, while its refining operations made a profit of 21.25 billion yuan. That still wasn't enough to offset the total upstream loss.
Weak demand in the domestic and international markets has exacerbated the woes of the big three, noted Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University.
Given this dismal situation, experts urged the three oil giants to cut costs, innovate, upgrade and diversify. Some of them are already following this strategy, according to media reports.
For example, CNOOC unveiled a plan in January to put a ceiling of 60 billion yuan on its capital expenditure in 2016, the Economic Information Daily noted on Monday. Sinopec said in April that it will shutter inefficient, obsolete oil wells to save costs.
Lin forecast a modest rally for global oil prices in the second half of 2016, as global demand is on the road to recovery and the amount of oil supplied is shrinking.
For example, output at China's three main oil fields - Changqing, Daqing and Shengli - slipped around 9 percent in the first six months of 2016, which was 3 percentage points higher than the domestic average crude output, according to research institute Energy Aspects.
As supply and demand reach a balance in the second half of 2016, global oil prices will bounce back and surpass $50 a barrel, Lin told the Global Times, adding that PetroChina and CNOOC will reap the benefits.
China National Petroleum Corp, the parent company of PetroChina, ranked second among the Top 500 Enterprises in China for 2016, with revenue of 1.88 trillion yuan in 2015, while Sinopec was third with revenue of 1.85 trillion yuan, the Xinhua News Agency reported on Sunday.
