Soaring oil prices should buoy second-half 2007 earnings at China’s energy majors, led by top Asian producer PetroChina, but refiners’ growth may slow in 2008 as they pay rising windfall taxes.

Crude oil prices jumped more than a third in July-December to nearly $96 a barrel, and have since topped $111 on tight supply, geopolitical risk and a weak dollar. Oil majors from Exxon Mobil to Royal Dutch Shell have posted record levels of profitability.
But income for PetroChina and Sinopec could be dented this year by the windfall taxes and widening refining losses. Offshore specialist CNOOC has no refinery exposure.
“PetroChina lacks a catalyst this year,” said DBS Vickers analyst Gideon Lo. “The traditional growth model of higher oil prices, higher earnings no longer exists due to soaring windfall tax and deepening refining losses.”
PetroChina, the world’s most valuable oil company after a big Chinese share issue last year, should post an increase of around a fifth in second-half profit to 74.3 billion yuan ($10.5 billion), based on an average forecast of 21 analysts polled by Reuters Estimates.
But a two-year old tax on oil revenue that keeps pace with price increases could take the shine off 2008.
The windfall tax kicks in after a firm sells oil at above $40 a barrel. The graduated tax starts at 20 per cent, but rises with prices to a maximum 40 per cent on $60 a barrel or more.
BNP Paribas’ Bradley Way said $100 oil meant a net loss for PetroChina because refining losses would exceed the gains from exploration and production.
China’s refiners are all deeply loss-making because of gaps between soaring world oil prices and low state-set domestic fuel prices, which Beijing is reluctant to adjust because of concerns about inflation and social unrest.
Top refiner Sinopec, which also produces, is expected to post a 16.5 per cent drop in July-December profit. Vice chairman Zhou Yuan warned this month Sinopec was losing 2,000 yuan ($282.2) for every tonne of gasoline it produces, and even more on diesel.