BEIJING, Mar.15 (Xinhuanet) -- High global energy prices and booming demand in China are expected to have boosted profits at PetroChina Ltd. and Sinopec Corp. in late 2003, but costs are expected to eat into 2004 earnings.

    Higher production costs probably hit profit at CNOOC Ltd., the country's top offshore oil and gas producer, in the second half of last year.

    Analysts say they expect profits to edge lower for both PetroChina and CNOOC this year as the companies are expected to spend more on production, and high oil prices that have helped their margins gradually recede.

    Sinopec, which is heavily geared towards refining and petrochemicals, probably got the biggest boost from high oil product prices last year.

    "CNOOC is the only one among the three that will report a profit decline (in the second half of 2003), because of higher costs, and that is expected to continue into 2004," said Michael Lee, an analyst at UOB Kay Hian.

    The outlook for all three depends heavily on oil prices because production growth, especially for PetroChina and Sinopec, remains flat.

    Annual net profit at PetroChina is expected to sink 13 percent this year and CNOOC's is expected to fall 20 percent. Sinopec's profit is forecast to jump 21 percent.

    China, the world's second-largest oil consumer, is plagued by old, depleted oil fields and is increasing imports to meet voracious demand.

    Its three oil majors, especially CNOOC, have been searching for overseas acquisitions to secure supply and keep power flowing to an economy that grew 9.1 percent last year.

    All three are expected to perform well during the current quarter as long as prices remain high. Benchmark U.S. light crude futures average US$30.98 per barrel last year, the highest annual average in more than two decades.

    CNOOC -- the first of the three to report results -- is expected Monday to post a 2.8 percent fall in net profit to 5.45 billion yuan (US$658 million) for the six months ended December.

    CNOOC's all-in production cost is expected to have risen to US$10 per barrel in the second half of the year, versus US$8.80 in the first half. For 2004, it may rise further to US$10.50 per barrel, UOB's Lee said.

    In late December, CNOOC warned that technical problems at some oil fields would cut output by around five to six million barrels-of-oil equivalent (BOE) and raise unit costs for 2004.

    CNOOC hopes to pump up to 145 million BOE this year.

    PetroChina, the country's largest oil and gas producer, is poised to record a 17 percent year-on-year increase in second-half earnings to 32 billion yuan.

    But an expected second-half provision for obsolete petrochemical assets will probably keep it from beating the first half's 38.62 billion yuan profit.

    PetroChina would take a provision of 1.4 billion yuan for scrapping obsolete petrochemical assets and 400 million yuan for inefficient assets in its refining and marketing operations, JP Morgan analyst Frank Li said in a research note.

    Nonetheless, PetroChina is expected to be the world's fourth-most-profitable oil company after Shell, BP, and Exxon Mobil, with its 2003 profit forecast at about 71 billion yuan.

    For 2004, Sinopec has an edge over main competitor PetroChina as its refinery and chemical businesses -- concentrated in the prosperous southern and eastern provinces -- enjoy strong demand for refined products such as gasoline and diesel as more vehicles crowd China's roads.

    Sinopec is expected to report an 18 percent rise in fourth-quarter earnings to 7.07 billion yuan.

    Its earnings growth in the final quarter was expected largely to have been driven by stellar performance at its downstream refining, marketing and chemical operations, analysts said.

(Shenzhen Daily)