On Jun 13, 2013, we retained our Neutral recommendation on
Chinese energy giant
PetroChina Co. Ltd.
). Our investment thesis is supported by a Zacks Rank #3 (Hold).
Why the Reiteration?
Going forward, the main growth driver for PetroChina will likely
be its leverage to the fast-growing Chinese market and the ever
expanding market/resource base. Being one of two Chinese
integrated oil companies, PetroChina is well-positioned to
capitalize on the country's favorable trends.
The Beijing-based integrated is also successfully expanding
its footprint in strategic locations like Canada and Australia.
However, we are concerned about prospects for the company's oil
production growth, considering its heavy exposure to
significantly mature-producing areas. Other near-term headwinds
include high-priced gas imports amidst low domestic gas sale
prices and an ambitious investment program.
DAWSON GEOPHYS (DWSN): Free Stock Analysis
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China's impressive economic growth has significantly increased
its demand for oil, natural gas and chemicals. This growth
momentum presents attractive opportunities for industry players
(like PetroChina) that can meet the country's fast-growing energy
needs. Additionally, we expect the company - the world's biggest
listed oil producer by volume ahead of
Exxon Mobil Corp.
) - to benefit from attractive growth prospects in the downstream
and natural gas sectors.
We like PetroChina's recent natural gas deals in Canada and
Australia. The Chinese behemoth's plans - to form a joint venture
in Canada's Alberta to develop natural gas/condensates assets and
to purchase interests in the proposed Western Australian Browse
liquefied natural gas (LNG) project - will provide it with a
global resource and market base, making the company a leading
international energy player. Additionally, these ventures will
also provide a hedge against the uncertain Chinese product
However, we are concerned by the high-priced gas imports in the
face of artificially low domestic gas sale prices. Sluggish oil
production growth prospects and heavy exposure to significantly
mature producing areas remain near-term headwinds as well, in our
view. Regulated prices, policy uncertainty and an ambitious
investment program add to the downbeat sentiment.
Stocks That Warrant a Look
While we expect PetroChina to perform in line with its peers and
industry levels in the coming months and advice investors to wait
for a better entry point before accumulating shares, one can look
Newpark Resources Inc.
Dawson Geophysical Co.
) as good buying opportunities. These energy equipment service
providers - sporting a Zacks Rank #1 (Strong Buy) - have solid
secular growth stories with potential to rise significantly from