PetroChina Company Limited - ADR (PTR): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We are maintaining our Neutral recommendation on PetroChina ADRs. Going forward, the main growth driver 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. It is also successfully expanding its footprint in strategic locations like Canada, Australia and Iraq. 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 limited international exposure and an ambitious investment program.

Overview:

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

PetroChina was established in November 1999 as a part of a restructuring of China National Petroleum Corporation (CNPC), a state-owned entity, which currently holds a majority stake of 86.35% in PetroChina. The company operates in four segments: Exploration & Production, Natural Gas & Pipelines, Refining & Chemicals, and Marketing.

Exploration & Production: PetroChina is one of the largest producers of crude oil and natural gas in the world, with 2012 production of 916.5 million barrels of crude oil and 2,558.8 billion cubic feet (Bcf) of marketable natural gas. As of year-end 2012, the company had approximately 22.3 billion BOE in proved reserves (essentially flat year-over-year), of which approximately 50% was liquids (67% proved developed) and the rest natural gas (47% proved developed).

Most of PetroChina's crude oil and natural gas reserves and production-related assets are located in China, principally in northeastern, northern, southwestern and northwestern China. The Songliao basin, located in Heilongjiang and Jilin provinces in northeastern China, including the Daqing and Jilin oil regions, accouns for approximately 40% of the company's proved crude oil reserves and production. The company also has significant crude oil reserves and operations in the area around the Bohai Bay, including the Liaohe, Dagang, Huabei and Jidong oil regions, which makes up roughly 20% of its proved crude oil reserves and production. PetroChina's proved natural gas reserves and production are generally concentrated in northwestern and southwestern China, specifically in the Erdos, Tarim, and Sichuan basins.

Natural Gas & Pipelines: PetroChina is the largest transporter and seller of natural gas in China in terms of sales volumes. The company sells natural gas primarily to fertilizer and chemical companies, commercial users and municipal utilities owned by local governments. Its existing natural gas pipelines form regional natural gas supply networks in northwestern, southwestern, northern and central China, as well as the Yangtze River Delta. PetroChina's midstream assets include a vast network of natural gas pipelines, with a total length of roughly 21,304 kilometers, representing the bulk of China's onshore natural gas pipelines. A major midstream project is the 4,843-kilometer west-to-east pipeline II that transports gas produced in the company's natural gas fields in the western and southwestern regions of China to large potential markets in eastern China. In October 2004, PetroChina completed the construction of the main line of the west-to-east pipeline and commenced commercial operation in December 2004. Since then, it has built 3 connecting pipelines for this project. As of December 31, 2012, the company owned and operated a crude oil pipeline network of 14,782 kilometers, natural gas pipeline network of 36,116 kilometers, and refined product pipeline network of 9,334 kilometers.

Refining & Chemicals: PetroChina's refining operations include 2.58 million barrels per day in refining capacity. PetroChina operates 26 refineries located in eight provinces, four autonomous regions and one municipality. The company's operations include the refining, transportation, storage and marketing of crude oil, and the wholesale, retail and export of refined products, including gasoline, diesel, kerosene, lubricant, paraffin, and asphalt. In 2012, PetroChina's refineries processed 1,012.5 million barrels of crude oil and produced approximately 91.02 million tons of gasoline, diesel and kerosene.

The company is also the second largest manufacturer of chemicals in China, producing and selling a wide range of basic and derivative petrochemical products and other chemical products through 13 chemical plants and 4 chemical products sales companies. PetroChina's chemical plants and sales companies are located in six provinces, three autonomous regions and two municipalities under the direct administration of the central government in China.

Marketing: The firm's marketing operations include a distribution network of 17,262 retail sites, 23 regional sales and distribution branch companies, and one lubricants branch company. Additionally, the company markets a range of refined products, including gasoline, diesel, kerosene and lubricants, through a network of sales personnel and independent distributors and a wholesale and retail distribution system across China.


PetroChina Company Limited - ADR (PTR): Read the Full Research Report

PETROCHINA ADR (PTR): Free Stock Analysis Report

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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 The NASDAQ OMX Group, Inc.



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