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China Petroleum & Chemical

Sinopec 185Shale gas has completely changed the picture for North America, and China Petroleum & Chemical Corp or Sinopec (SNP) hopes it can the same in the emerging market nation.

China features some of the largest shale gas reserves on the planet, but has suffered from the high costs and technological know-how required to get it out of the ground. Some analysts have speculated that’s why China has actually been buying up shale fields in Canada — to get at the technology.

Regardless, Sinopec may have finally cracked the code.

SNP has finally begun production shale gas from 30 test wells in commercial quantities — about 1.06 million cubic meters of gas per day — in China’s Fuling shale field. That success in drilling has prompted Sinopec to more than doubled its 2015 output targets for the key shale formation. Additionally, SNP has partnered with Royal Dutch Shell (RDS.A) to begin prospecting other shale fields for production.

While waiting for these shale efforts to pay off, investors in Sinopec gain access to one of china’s largest overall energy producers and the nation’s largest refining of crude oil. And unlike many other integrated oil firms this quarter, SNP’s earnings were actually helped by that downstream position.

SNP trades for a dirt-cheap forward P/E of 7.6.

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