High crude oil prices may hinder China's refiners but they benefit some of the country's oil producers. China's biggest offshore oil and gas producer posted a better-than-expected first-half profit, while its top two refiners saw first-half profit plummet by more than expected.
Beijing's regime of uneven price controls allows China National Offshore Oil Corp. (nyse: CEO - news - people ), or CNOOC, to sell crude at high market-set prices to refining giants PetroChina (nyse: PTR - news - people ) and Sinopec (nyse: SNP - news - people ), which sell finished oil products to domestic consumers at state-controlled prices. With current high global oil prices, "upstream" producers will earn more with higher production while "downstream" operators will lose money as they increase output.
CNOOC's first-half profit soared a record 89.3%, compared with last year's corresponding period, to hit 27.5 billion yuan ($4.0 billion), news that sent shares over 7% in New York. CNOOC boosted output and profited from crude prices up 63.0% compared with a year ago.
Meanwhile, PetroChina's first-half profit fell 35%, compared with last year's corresponding period, to 53.6 billion yuan ($7.8 billion). The half-year decline, also due to the high price of crude, is the firm's steepest since 2001. Sinopec earlier reported that first-half profit fell by 77% (See " Sinopec Keeps Chin Up Despite Grim Outlook").
CNOOC ramped up production by 8.3%, compared with last year's similar period, to 92.4 million barrels, and the average price fetched soared 74.3% to $102.49 a barrel. CNOOC aims to boost output by 18% this year.
Despite a production boost, PetroChina's refining business lost 59 billion yuan ($8.6 billion), as Beijing kept pump prices artificially low to combat inflation. Sinopec Chairman Su Shulin said Tuesday that "the worst is still not yet past," according to the Shanghai Securities News. Beijing hiked retail gas prices for the second half of the year and is likely to raise them further, giving a boost to refiners, but the government will also roll back subsidies to those same firms.
In early-afternoon trading in New York, CNOOC's American Depositary Receipts were up $10.80, or 7.41%, to $156.51. PetroChina's ADR's were up $1.91, or 1.50%, to $130.31.