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China Petroleum & Chemical Corp (ADR) (SNP), CNOOC Limited (ADR) (CEO): Chinese Oil Majors Create Smörgåsbord for Bond Investors

Sinopec needs cash as it has been purchasing assets from its parent China Petrochemical. Some of the debt will also be used to pay short-term loans. Similarly, CNOOC Limited (ADR) (NYSE:CEO) acquired the Canadian energy firm Nexen in a $15.1 billion deal last year and it will use the debt to fund the takeover.

In the last six months, China Petroleum & Chemical Corp (ADR) (NYSE:SNP)’s ADR has risen 1% while CNOOC is down 10.7%. Sinopec recently posted strong results in its quarter where its profits jumped 25% to $2.7 billion as its refining operation became profitable. On the other hand, CNOOC reported a 9.3% drop in annual profits on March 22 but its pipeline is extremely strong, with a reserve replacement ratio of 188% in 2012, up from 158% in 2011, and that does not include Nexen’s figures. China Petroleum & Chemical Corp (ADR) (NYSE:SNP) is slightly more expensive than CNOOC Limited (ADR) (NYSE:CEO) at the moment, but it offers a strong yield of more than 5% along with a much more profitable refining business with the overhauling of China’s fuel pricing scheme.

Sinopec CNOOC
P/E 9.7 8.2
EPS 11.3 22.6
Yield 5.3% 4.00%
ROA 5.0% 12.8%
ROE 12.7% 22.2%

Sinopec looks to be the stronger of the two firms here with the liberalization of diesel and petrol pricing allowing for increased refining margins and its aggressive foreign investment moves around the region, Sinopec should see return on assets rise significantly in 2014. While China’s economy may be slowing down somewhat, its petroleum usage is still growing at twice the rate as the rest of the world with auto sales up strongly so far in 2013, so refining margins will not only improve for Sinopec because of legislation, but it’s building a portfolio of upstream assets will cut its costs in the long run.

Peter Pham has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Peter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Chinese Oil Majors Create Smörgåsbord for Bond Investors originally appeared on and is written by Peter Pham.

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