Sinopec Plans to Boost Exploration Spend

(Hong Kong) — China Petroleum & Chemical Corp. is planning to spend 18.3 billion yuan ($2.67 billion) more in exploration this year than 2016, based on its optimistic forecast of rising crude oil prices.

“We predict that oil prices have bottomed out since the declines of 2014,” said Jiao Fangzheng, vice president of the oil giant, also known as Sinopec, at a press conference in Hong Kong on Monday. “With oil prices gradually recovering this year, our upstream business performance will significantly improve.”

Sinopec on Sunday reported a 2016 net profit of 46.7 billion yuan, up 43.6% from 2015, thanks to increased earnings in its oil refinery business and the sale of 22.8 billion yuan of equity in a natural gas pipeline company.

Following a plunge in international oil prices to below $30 a barrel last year, Sinopec reported capital expenditure of 76.46 billion yuan for 2016, down 32% year-on-year.

The company said it planned to spend 110.2 billion yuan in 2017, with 50.5 billion to be used for exploration, up 18.3 billion yuan from the previous year.

Jiao said the increased investment was based on the company’s expectation that crude oil prices will reach $50-55 this year. The money will mainly be used to expand exploration and build up crude oil production capacity.

Oil prices rebounded late last year after the Organization of the Petroleum Exporting Countries (OPEC) agreed to limit production, but have seen declines recently. Jiao said this was because some OPEC members fulfilled only 50-60% of their production cut targets, and the U.S. experienced growth in oil and gas production.

But Jiao said that the determination of OPEC to control oil prices will still help with a gradual price rise. The initial public offering (IPO) plan of the world’s largest oil company, Saudi Aramco, will also encourage Saudi Arabia to create a stable market.

Wang Yupu, chairman of Sinopec, said Monday that Aramco will invite Sinopec to invest in what could be the world’s largest IPO. The two companies discussed this when Aramco CEO Amin Nasser visited Beijing this month, Wang said.

Jiao said Sinopec will focus on natural gas development this year. It plans to produce 24.8 billion cubic meters of natural gas, compared with 21.6 billion last year.

Contact reporter Wu Gang (gangwu@caixin.com)