Gas Imports And Refining Hit PetroChina Earnings
Chinese energy giant PetroChina Co. Ltd. (PTR) announced 2012 earnings of RMB 115.3 billion or RMB 0.63 per diluted share, compared with RMB 133.0 billion or RMB 0.73 per diluted share a year earlier. Earnings per ADR came in at $10.00 (exchange rate: US$1.00 = RMB 6.3, 1 ADR = 100 shares), lower than the Consensus Estimate of $10.88.
The negative comparisons can be primarily attributable to high natural gas import prices, as well as government caps on domestic fuel prices that eroded refining margins.
However, PetroChina’s total revenue for the year increased 9.6% from 2011 to RMB 2,195.3 billion, driven by higher output.
Upstream: PetroChina, the world’s biggest listed oil producer by volume ahead of Exxon Mobil Corp. (XOM), posted strong upstream output growth during the twelve months ended Dec 31, 2012. Crude oil output rose 3.4% from the year-ago period to 916.5 million barrels (MMBbl), while marketable natural gas output was up 6.8% to 2,558.8 billion cubic feet (Bcf).
But average realized crude oil price during 2012 was $103.65 per barrel, representing a slight decrease from $104.20 per barrel in the previous year. This pulled down the upstream (or exploration & production) segment profit by 2.1% to RMB 215.0 billion.
Downstream: The Beijing-based company’s ‘Refining & Chemicals’ business registered an operating loss of RMB 43.5 billion, slightly narrower than the year-earlier period loss of RMB 61.9 billion. The continued loss in the downstream division was due to PetroChina’s inability to shift the burden of rising oil costs to its consumers, as mandated by the state policy of keeping a lid on gasoline and diesel prices.
PetroChina’s refinery division processed 1,012.5 MMBbl during the twelve-month period, up from 984.6 MMBbl in 2011. The company produced 6.089 million tons of synthetic resin in 2012 (a rise of 7.0% year over year), besides manufacturing 3.690 million tons of ethylene (up 6.4% from 2011). It also produced 91.0 million tons of gasoline, diesel and kerosene during the period, as against 87.2 million tons a year earlier.
Natural Gas & Pipelines: While stronger gas demand led to a 31.1% increase in imports, these came at high global prices. Moreover, the company was forced to sell the commodity at controlled domestic prices. As a result, PetroChina’s natural gas business incurred a loss of RMB 2.1 billion in 2012, as against the year-earlier profit of RMB 15.5 billion.
Marketing: In marketing operations, the state-owned group sold 153.28 million tons of gasoline, diesel and kerosene during Jan–Dec 2012, an increase of 5.3% year over year. However, rising operating expenses and tepid refined products demand meant that PetroChina’s segment profit fell 20.6% year over year to RMB 16.4 billion.
Liquidity & Capital Expenditure
At the end of 2012, PetroChina’s cash balance was RMB 43.4 billion, while cash flow from operating activities was RMB 239.3 billion. Capital expenditure for the period reached RMB 352.5 billion, up 24.0% from the year-ago level.
Stocks to Consider
PetroChina currently carries a Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at other international integrated energy firms like Statoil ASA (STO) and YPF S.A. (YPF) as attractive investments. Both these firms – sporting a Rank #2 (Buy) – offer value and are worth accumulating at current levels.