China Petroleum and Chemical Corporation SNP, also known as Sinopec, reported  2014 net income of 47.4 billion yuan (US$7.71 billion) or 0.406 yuan per diluted share, compared with 67.2 billion yuan (US$10.84 billion) or 0.543 yuan per diluted share reported a year ago. Earnings per ADR came in at $6.60 (exchange rate: US$1.00 = 6.14 yuan; 1 ADR = 100 shares), which lagged the Zacks Consensus Estimate of $7.16.

For 2014, revenues declined 1.9% to 2,825.9 billion yuan (US$459.5 billion) from 2,880.3 billion yuan (US$471.2 billion) in 2013. This was owing to a fall in the price of crude oil and petrochemical products. The revenues, however, beat the Zacks Consensus Estimate of $458.4 billion.

Operational Performance

During the period ended Dec 31, 2014, Sinopec’s crude oil production grew 8.5% year over year to 360.7 million barrels, while natural gas volumes expanded 8.5% year over year to 716.3 billion cubic feet. Domestic crude oil production remained flat, while overseas volumes surged 129.8% year over year to 49.9 million barrels.

Total oil and gas production grew 8.4% year over year to 480.2 million barrels of oil equivalent.

A decline in crude oil prices along with rising expenses resulted in more than 14% fall in the Exploration and Production (E&P) segment’s operating profit from that in the prior year. The figure came in at 47.1 billion yuan (US$7.7 billion).

The company’s Refining business recorded refinery throughput of 235.4 million tons, down 1.5% from the year-ago level.

The Marketing and Distribution segment sold 189.2 million tons of refined oil products, reflecting a 5.1% year-over-year increase.

The output of ethylene from the Chemicals segment was 10.698 million tons, up 7.2% from the prior-year level.

Operating Cost

Total operating expenses during 2014 came in at 4,643.7 billion yuan, 3% lower than the year-earlier quarter.

Capital Expenditure

For 2014, capital expenditures totaled 154.64 billion yuan.

Capital expenditure for the E&P segment was RMB 80.196 billion, mainly due to the development oil and gas production capacities at various oil and gas fields, including Jiyang trough, Sichuan Basin, Tahe oilfield, and Ordos Basin; liquefied natural gas (LNG) projects in Shandong and Guangxi. Construction of long-distance oil and gas pipeline projects, and the overseas projects also added to the expenses.

Capital expenditure for the Refining Unit was RMB 27.96 billion, primarily because of upgrading refinery and revamping projects in Yangtze, Shijiazhuang, Jiujiang and Tahe.

In the Chemicals segment, RMB 15.85 billion was used for coal chemical plant at Sinopec Great Wall Energy and Chemical Industry (Ningxia) Company Ltd. and the Qilu acrylonitrile project.

Capital expenditure for the Marketing and Distribution segment was RMB 26.989 billion. This was due to the development and revamp of service stations (including gas stations), construction of depots and oil product pipelines, ensuring safety and improving the environment.

A total of RMB 3.648 billion was used for Corporate and Other purposes such as construction of R&D facilities and IT projects.

Zacks Rank

Sinopec currently holds a Zacks Rank #2 (Buy). Other stocks from the oil and gas sector worth considering include Valero Energy Partners L.P. VLP, Western Gas Equity Partners, L.P WGP and Hallador Energy Company HNRG. Each of these stocks sports a Zacks Rank #1 (Strong Buy).