Yanchang Petroleum Plans Bigger 2009 Spending on Product Offering, Sales Network
Year:2009 ISSUE:6
COLUMN:M & A, BUSINESS & TRADE
Click:199    DateTime:Feb.24,2009
Yanchang Petroleum Plans Bigger 2009 Spending on Product Offering, Sales Network   

At a time the whole petrochemical industry is delaying or reducing investments, Shaanxi Yanchang Petroleum (Group) Co., Ltd. announced plans to spend RMB30 billion in 2009 to adjust its product offering portfolio and strengthen distribution network.
    "We hope this investment could catch opportunities for the next cycle of economic growth," a company official said.
    "At present, Yanchang Petroleum's inventory for oil products is quite high, which places great pressure on sales," he said. Even though, Yanchang Petroleum didn't scale back on crude oil production. "We plan to carry on until March 2009, when we will consider our next move again. We will try our best to get through the hard time."
   Yanchang Petroleum is based in the north of Shaanxi province, a northwest province in China where geological conditions are not quite good for petroleum exploration and production with relatively low reserves abundance and single-well output. In addition, the company has to pay RMB550 to the local government for producing each ton of crude oil, resulting in higher crude oil production costs and refining costs compared with those of Sinopec Group and China National Petroleum Corp. (CNPC).
    In the face of such disadvantages, Yanchang Petroleum keeps boosting spending in 2009 as it bets the economic slowdown could allow lower infrastructure construction costs and also an opportunity to adjust product portfolio.
   Among the RMB30 billion budget, RMB2.3 billion will go to oil exploration and RMB8.1 billion to production, and the majority of the rest will be spent on oil and gas-based chemical projects. Nearly 20 projects have been planned, with the biggest one being the RMB3.5 billion integrated energy and chemical industrial park project in Jingbian, Shaanxi, which will house methanol, methanol-to-olefin projects, deep catalytic cracking projects as well as polypropylene, polyethylene and polyvinyl chloride production facilities.
   Yanchang Petroleum booked profit of RMB10 billion and sales of RMB62.2 billion in 2008.
   "The sales of our oil products have been slashed by about RMB6 billion since the fourth quarter 2008 because of the financial tsunami," the official said. "The situation would be more severe in 2009 for Yanchang Petroleum's operations, as the government has lowered fuel prices, changed in fuel tax charge, with increase of taxes levied by regional government."
   "Also, as all the pump stations and sales companies in northern Shaanxi are controlled by Sinopec Group and CNPC, Yanchang Petroleum has to rely on the two state giants for fuel sales. However, amid the current slowing demand, Sinopec and CNPC couldn't even sell up their own products, not to mention those of Yanchang Petroleum."
   Yanchang Petroleum has tapped the overseas oil exploration business. It partnered Sino Union Petroleum & Chemical International Ltd. (SUNPEC, HK: 00346) in October 2008 for oil exploration, production, and operation for an oil block in Madagascar. The cooperation has proceeded very smoothly to date.
   Meanwhile, a company executive said the company is awaiting Thai government approval for a natural gas project in Thailand. The project will be invested by a Sino-Thailand joint venture, which will be controlled by Yanchang Petroleum.
   The company has set a strategic goal of having RMB100 billion in sales in 2010, when it's set to become a top 50 Chinese enterprises, as well as China's leading and a world renowned integrated oil, coal and chemical group.