On Apr 13, Zacks Investment Research downgraded Chinese energy
giant PetroChina Co. Ltd. ( PTR ) to a Zacks Rank
#4 (Sell).EPL OIL&GAS INC (EPL): Free Stock Analysis
ReportCHENIERE ENERGY (LNG): Free Stock Analysis
ReportPETROCHINA ADR (PTR): Free Stock Analysis
ReportEXXON MOBIL CRP (XOM): Free Stock Analysis
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Why the Downgrade?
On Mar 21, Beijing-based PetroChina - the world's biggest listed
oil producer by volume ahead of Exxon Mobil Corp.
( XOM ) - announced
weak 2012 results, primarily attributable to high natural gas
import prices, as well as government caps on domestic fuel prices
that eroded refining margins.
In particular, as more high-priced gas imports (from Turkmenistan)
are being brought in through the 'Central Asian Gas Pipeline',
there is an urgent need for PetroChina to press the government to
raise artificially low domestic gas sale prices in line with global
levels. As of now, gas imports are coming at a loss, thereby
pressuring the company's profitability.
Moreover, though the Chinese oil companies are able to charge
close to market prices for their crude oil volumes (typically with
about a one-month lag and heavily taxed by the government), the
government caps the prices of refined-products (particularly
gasoline and diesel) to control inflation. These price regulations
do not allow PetroChina to pass high refining costs to
We also remain concerned by PetroChina's oil production growth
prospects. With about a third of its current crude oil volumes
coming from the Daqing Oil region, the company is heavily exposed
to this area. The Daqing Oil region is the largest crude oil
producing area in China, but has significantly matured over the
years and is currently well past its prime. As the degree of
difficulty in extracting crude oil from the mature Daqing field
increases over time, costs at these fields continue to
Stocks that Warrant a Look
While we expect PetroChina to perform below its peers and industry
levels in the coming months and see little reason for investors to
own the stock, one can look at Cheniere Energy
Inc. ( LNG
) and EPL Oil & Gas Inc. ( EPL ) as good buying
opportunities. These domestic upstream energy operators - sporting
a Zacks Rank #1 (Strong Buy) - have solid secular growth stories
with potential to rise significantly from current levels.