Sinopec Group to Deepen Expenditure Cuts This Year

By Wang Ying

Sept. 8 (Bloomberg) -- China Petrochemical Corp., Asia's biggest oil refiner, said it will deepen spending cuts this year and delay some projects as high crude prices erode earnings.

Sinopec Group, as China Petrochemical is known, is struggling to boost profits and cash-flow, Wang Tianpu, president of the unit China Petroleum & Chemical Corp., said in a company newsletter today without giving details.

The Hong Kong-listed unit will trim its 2008 capital expenditure by 8.2 billion yuan ($1.2 billion) because of ``cash-flow constraints,'' Chairman Su Shulin said last month. Shares of Sinopec, as China Petroleum is known, have slumped 38 percent this year as the Chinese government prevented the refiner from passing on higher crude costs to customers.

``For a period of time to come, global crude prices may remain high and the petrochemical industry may become even more competitive,'' Wang told Sinopec employees at a company meeting on Sept. 5, according to the newsletter.

Benchmark oil prices in New York are 40 percent higher than a year ago. Crude for October delivery was at $108.90 a barrel in after-hours electronic trade at 11:44 a.m. in Singapore.

Sinopec's first-half profit slumped 77 percent from a year earlier to 8.26 billion yuan, while refining losses reached 46 billion yuan, the company said on Aug. 24. The third and fourth quarters will be the most challenging period for Sinopec, Su said on Aug. 26.

The 2009 budget of the refiner will focus on ``key projects,'' Wang said without giving details. A plan to bid for London-based oil and gas explorer and producer Imperial Energy Plc had been scrapped, its parent said on Aug. 28.

Cutting Back

Beijing-based Sinopec plans to cut 2008 expenditure on exploration and development by 1.9 billion yuan, reduce its spending on refineries by 1.7 billion yuan and lower investment in chemical plants by 4.6 billion yuan, Su said last month.

The company will also postpone the operational startup of its Puguang gas field in Sichuan by up to a year, company spokesman Huang Wensheng said at the time. The company has reduced its 2008 natural gas production target by 8 percent to 8.28 billion cubic meters, according to data from Sinopec.

Sinopec and Kuwait Petroleum Corp. may start building a $5 billion refinery and chemical project in Guangdong province as early as this year, an official from the Kuwaiti company said on May 6.

Sinopec's shares were at HK$7.36 at 11:49 a.m. local time, up 3.7 percent, while the benchmark Hang Seng Index was 3.7 percent higher at 20672.96.

To contact the reporter on this story: Wang Ying in Beijing at wang30@bloomberg.net;