Surging crude prices should help China's oil triumvirate, led by PetroChina Co. Ltd. , post record second-half profits from next week, but analysts warn earnings growth may slow in 2006.
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China's oil heavyweights -- which include Asia's top refiner Sinopec Corp. and offshore player CNOOC Ltd. -- will devote some spare cash to foreign acquisitions or developing domestic fields to feed ravenous demand from China, the world's largest oil user after the United States.

But repeating 2005's performance will be difficult given last year's 40 percent run-up in oil prices , which now stand above $60 a barrel.

"A little bit different, and more difficult," was how Deutsche Bank analyst David Hurd described the firms' prospects this year. "It doesn't look like the oil price is going to go up and up and up."

Crude oil prices jumped to an average $55 a barrel in 2005, from $38 in 2004. Hurd expects an average of $58 this year.

"So you're talking about 44 percent in 2005 and maybe 5.5 percent this year," he said.

PetroChina , the world's fourth most-valuable oil company, is expected to kick off earnings results on Monday with a second-half profit increase of nearly 34 percent to 77.02 billion yuan ($9.6 billion), based on the average forecasts of 24 analysts polled by Reuters Estimates.

The results would incorporate for the first time overseas earnings from a fledgling venture set up with its state parent.

Reflecting bullish expectations, shares in PetroChina -- which counts investment guru Warren Buffett as a shareholder -- rallied more than 50 percent in 2005, versus CNOOC's 26 percent and Sinopec's more than 20 percent.

That compared with a 12 percent climb in the index of Hong Kong-listed Chinese firms .

The rally meant all three are trading in line with global peers. PetroChina is at 10.2 times forecast earnings and Sinopec and CNOOC are at 10.5 times and 9.7 times, respectively, compared with Exxon Mobil's 10.5 and BP's 10.5.

"PetroChina and CNOOC are not cheap at this level, we have market-perform ratings on those," said an analyst who declined to be identified.

But, the analyst added: "Sinopec, which we rate outperform, will look attractive after pricing reform."

REFORMS CRUCIAL

Oil prices aside, analysts say share performance hinges on the magnitude and timing of a string of reforms in the pipeline in China, including a controversial overhaul of the nationwide pricing of refined products such as diesel and gasoline.

Analysts discount full liberalisation but say Beijing would do something soon to help loss-making refiners squeezed between surging crude costs and a government cap on gasoline prices.

Citing industry sources, Goldman Sachs said Beijing is pondering a windfall tax on upstream -- or production -- operations. A 20 to 40 percent tax could be levied on revenues generated by oil prices above $40 a barrel, the bank wrote.

Although it's unclear how and when it could be implemented, the windfall tax -- similar in spirit to calls by U.S. politicians and consumer groups for special taxes on Big Oil -- would hurt the Chinese oil trinity.

PetroChina, which controls two-thirds of Chinese oil production, enjoyed a 5.5 percent rise in oil output and a 44 percent surge in its oil selling price in 2005.

But the firm's refining and petrochemical divisions are expected to have sunk into the red in the second half, said BOCI analyst Lawrence Lau.

On Monday, PetroChina -- which has a market capitalisation of nearly $176 billion, ahead of Total S.A.'s $175 billion -- is expected to shed light on 2006 capital spending, on gas prices, and a potential acquisition of PetroKazakhstan from state-owned parent China National Petroleum Corp.

CNOOC should report later in March, with investors likely to focus on the financing of its biggest-ever acquisition, in Nigeria.

Capital spending requirements and the Nigerian asset would impose a heavy cash-flow burden on the company in coming years, JPMorgan Chase & Co. wrote.

Sinopec , which processes 2.8 million barrels a day, is expected to be the major beneficiary if Beijing lifts gasoline and diesel prices.

Its forecast 10-percent income climb comes after Beijing handed over a $1.2 billion, one-off compensation for losses caused by the retail price cap.??