Randy Kirk

Largest Companies in the World

It's interesting to not see Citigroup and Bank of America listed among the top firms by market capitalization - when they are listed in the top 10 of the 2007 Forbes Global 2000 -- goes to show the effects of the current financial crisis. Interesting to see HSBC and the Chinese Banks not affected to nearly the degree as BofA and Citi.

Also interesting to see that almost all the firms are down year to date except Wal-Mart and J&J. (would expect to see a higher percentage of larger firms, which are expected to be more "safe" than smaller firms, holding their own in a down market).

Sinopec: Potential for Growth

Thanks for that comment Ex15:26 -- Sinopec as a whole is not losing money currently, as Sinopec has 4 divisions, upstream, marketing, chemicals and refining -- and refining is losing money, the other divisions are profitable.

The extent to which Sinopec's refining division is losing money is a complicated matter, which doesn't translate easily into the press -- I've addressed Sinopec's refining division in an earlier article which can be found here: seekingalpha.com/artic...

I can comment, last quarter was a bit of a surprise in terms of the size of the refining losses, however, SNP didn't provide much detail on their other divisions -- I suspect that they are expensing a lot of exploratory expenses in their upstream division, which didn't show any profit growth in the first quarter (which was a surprise, as oil prices were up significantly). But as Tahe, Puguang (as mentioned in the article above) come online, E&P profits should increase.

Overall, the Chinese oil majors tend to move a lot day to day, with moves of -/+5% not uncommon -- much of this I believe is due to the movement of the overall Chinese markets, which are very volatile.

Note sentiment towards Sinopec is currently at a nadir, as most endowments and EU related funds have divested Sinopec due to the Sudan issue, and there is a lot of resentment towards SNP by western oil majors due to SNP's aggressive attitude towards international oil acquisitions. This filters down to articles in the press.

In terms of a pair trade, I generally go long and hold for a longer period of time (well over a year) so can't predict short term moves. Also, I can't predict what will happen to the price of oil over the short term.

Sinopec: Potential for Growth

CEO is more straightforward -- also a good buy (in my opinion) -- CEO doesn't have the refining issues or the Sudan issues of Sinopec. Sinopec is selling at a slightly lower market capitalization than CEO currently -- unusual for an integrated oil major to sell at approximately $80Bn that is ranked #22 on Forbes Global ranking of the world's 500 largest companies.

The relatively low market capitalization of Sinopec is I believe is mainly due to three issues
1. Refining division -- this is currently losing money, although how much and what sort of subsidies and future price increases in the price of petrol within China is a point of debate

2. Sudan divestment -- PetroChina is much more active in Sudan than Sinopec, (any activity there could be construed as a legitimate reason to sell however) and most funds and endowments which have divested PetroChina due to the Sudan have also divested Sinopec.

3. International oil community resentment of Sinopec -- Sinopec has been very aggressive in bidding for international oil projects, which has driven up the price of oil projects for all oil majors -- this has led to a negative attitude in general towards SNP by oil majors and western oil publications.