Sinopec Sees a Larger Pot and Raises: China Petroleum & Chemical Corp (ADR) (SNP)

Outward Ho!

Meanwhile, Sinopec plans to purchase upstream oil and gas assets; including those in Britain, Russia, Colombia and Kazakhstan, from its parent valued at $8 billion. Sinopec wants to increase its exposure outside of China as local operations are hurting its bottom line. According to Jefferies, China Petrochemical Corp holds about $40 billion of international upstream oil, gas and unconventional fuel (shale) assets; with significant exposure to Brazil, Canada, Australia, Argentina and Angola, all of which are on Sinopec’s radar.

In the U.S, it purchased five shale oil and gas assets from Devon Energy Corp (NYSE:DVN) last year for $2.44 billion. The parent currently owns 73.4% of Sinopec Corp. However, investors should note that Sinopec has the highest debt ratio out of China’s big oil which is shown in the table below (Jun-2012 data). Although this is expected to fall to 54% by the end of 2012, it will still be far more than that of its peers.

This is why they are having to fund this round of acquisitions with equity.  The business will continue with more acquisitions and expansion. Despite the recent dip due to dilution, its stock has risen by 17.21% in the last six months. PetroChina; the largest of the three Chinese ‘big oil,’ offers highest yield but the leading offshore player CNOOC, despite offering smallest yield, is far more profitable. Not only does it have a lower P/E, it has generated significantly more EPS than its rivals while its return on assets and equity is more than twice as big as that of either Sinopec or PetroChina which makes CNOOC relatively more attractive.

The article Sinopec Sees a Larger Pot and Raises originally appeared on Fool.com and is written by Peter Pham.

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