Downstream Woes Hurt PetroChina - Analyst Blog

By Zacks Equity Research,

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Chinese energy giant PetroChina Company Limited ( PTR ) announced its first half 2012 earnings of RMB 62.0 billion or RMB 0.34 per diluted share, compared with RMB 66.0 billion or RMB 0.36 per diluted share in the year-earlier period. Earnings per ADR came in at $5.39 (exchange rate: US$1.00 = RMB 6.3089, 1 ADR = 100 shares).

The profit slump can be attributable to refining losses and weaker domestic demand, partially offset by higher oil prices and stronger volumes.

The Beijing-based integrated outfit's total revenue for the six months totaled RMB 1,046.7 billion, an increase of 9.9% from the year-earlier period.

Segmental Performance

Upstream: PetroChina, which last year overtook Exxon Mobil Corporation ( XOM ) as the world's biggest listed oil producer, posted strong upstream output growth during the six months ended June 30, 2012. Crude oil output rose 1.5% from the year-ago period to 452.4 million barrels (MMBbl), while marketable natural gas output was up 9.0% to 1,292.4 billion cubic feet (Bcf).

Average realized crude oil price during the first six months of 2012 was $107.98 per barrel, representing an increase of 6.3% from $101.62 per barrel in the corresponding period of the previous year.

This pushed the upstream (or exploration & production) segment profit higher by 9.7% to RMB 113.8 billion.

Downstream: PetroChina's refinery division processed 489.7 MMBbl during the six-month period, down from 491.4 MMBbl in 2011. The company produced 2.937 million tons of synthetic resin in the period (a decline of 1.0% year over year), apart from manufacturing 1.761 million tons of ethylene (down 3.2% from the first half of 2011). It also churned out 43.826 million tons of gasoline, diesel and kerosene during the period, against 43.393 million tons a year earlier.

The company's Refining & Chemicals business experienced an operating loss of RMB 28.9 billion, against a much narrower year-earlier period loss of RMB 21.0 billion. Apart from a slowdown in the domestic economic growth, PetroChina also suffered from its inability to shift the burden of rising oil costs to its consumers, as mandated by the state policy of keeping a lid on domestic refined product prices.

In marketing operations, the group sold 73.07 million tons of gasoline, diesel and kerosene from January to June 2012, an increase of 9.4% year over year.

Liquidity & Capital Expenditure

As of June 30, 2012, PetroChina's cash balance was RMB 73.4 billion, while net cash flow from operating activities was RMB 48.0 billion. Capital expenditure for the period reached RMB 111.7 billion, up by a substantial 57.1% from the year-ago level.

Sets Sights on Global Acquisition

PetroChina indicated that it is scouting for acquisition opportunities in Central Asia, East Africa, Australia and Canada. The Chinese powerhouse has allocated RMB 100 billion for this purpose in 2012, as it ultimately aims to boost its overseas production contribution to 50% of total volumes within 8 years, from the current 9%.    

Rating & Recommendation

PetroChina is the largest integrated oil company in China. The firm's activities include: exploration, development, production and sale of crude oil and natural gas, refining, transportation, storage and marketing of petroleum products, manufacture and sale of chemical products, and transmission of natural gas, crude oil and refined products.

Even though PetroChina has a Zacks #4 Rank (Sell rating) in the short run, we are Neutral on the ADRs in the longer term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: PTR , XOM

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