Chinese energy giant PetroChina Co. Ltd.PTR announced first-half 2016 earnings of RMB 531 million or RMB 0.003 per diluted share, compared with RMB 25.4 billion or RMB 0.14 per diluted share a year earlier. Earnings per ADR came in at 5 cents (exchange rate: US$1.00 = RMB 6.5, 1 ADR = 100 shares). Moreover, China's dominant oil and gas producer's total revenue for the six months under consideratin fell 15.8% from the comparable 2015 period to RMB 739.1 billion.
The negative comparisons can be primarily attributable to continued collapse in oil prices , which pummeled its biggest unit - exploration and production - to a loss.
PetroChina followed another big energy name from the country - CNOOC Ltd. CEO - in reporting dismal results on Wednesday. The third state-backed oil and gas firm China Petroleum & Chemical Corp. SNP is expected to come up with first-half numbers in the coming days.
PETROCHINA ADR Price, Consensus and EPS Surprise
Upstream: PetroChina, one of the world's largest oil company by market value and one-third the size of Exxon Mobil Corp. XOM , posted upstream output growth during the six months ended Jun 30, 2016. While crude oil output - accounting for 63% of the total - fell 1.4% from the year-ago period to 470.6 million barrels (MMBbl), marketable natural gas output more than made up for the loss and was up 7.4% to 1,664.9 billion cubic feet (Bcf). As a result, PetroChina's total production of oil and natural gas increased 1.7% year over year to 748.2 million barrels of oil equivalent.
But average realized crude oil price during the first six months of 2016 was $33.09 per barrel, representing a 36.5% decrease from $52.10 per barrel in the year ago period. This affected the upstream (or exploration & production) segment results, which swung to an operating loss of RMB 2.4 billion compared to an operating profit of RMB 32.9 billion in the first half of 2015. Some cushion came in the form of lower operating expenses, which declined 13.2% to RMB 184.9 billion.
Downstream: The Beijing-based company's 'Refining & Chemicals' business generated an operating income of RMB 27.5 billion. This is a significant increase from the year-earlier period earnings of RMB 4.7 billion. The improvement in the downstream division was due to strengthening refining margins and operational flexibility to adjust to market conditions. A 23.1% reduction in operating expenses also aided segment results.
PetroChina's refinery division processed 483.4 MMBbl during the six-month period, down 2.5% from 2014. The company produced 4.652 million tons of synthetic resin in the period (a rise of 24.7% year over year), besides manufacturing 2.815 million tons of ethylene (up 26.3%). It also produced 43.436 million tons of gasoline, diesel and kerosene during the period against 46.475 million tons a year earlier.
Natural Gas & Pipelines: Revenue fell 12.1% to RMB 122.2 billion on a sharp drop in natural gas prices , which was partly offset by improved pipeline transportation profitability. A strict control in natural gas import costs saw the Chinese behemoth bring down operating expenses by 10.8% to RMB 110.9 billion. Natural gas consumption was up 9.8% year over year to 99.5 billion cubic meters.
However, PetroChina lost money to the tune of RMB 8 million on the sales of imported natural gas and liquefied natural gas (LNG) from Central Asia and Burma. This pulled down the group's natural gas business' income to RMB 11.4 billion in the first half, a 23.1% decline from the year-earlier profit of RMB 14.9 billion.
Marketing: In marketing operations, the state-owned group sold 76.31 million tons of gasoline, diesel and kerosene during Jan-Jun 2016, a decrease of 1.9% year over year. Lower volumes were accompanied by a decrease in product prices due to which sales for the division were down 17.7% to RMB 587.7 billion.
However, PetroChina was able to counter the adverse factors - slow domestic demand growth and fierce competition - through excellent cost management. In fact, the group cut its operating expenses by 18% from the prior-year period to RMB 583.1 billion. This meant that PetroChina's segment profit jumped 65.6% year over year to RMB 4.6 billion.
Liquidity & Capital Expenditure
At the end of the first half of 2016, this Zacks Rank #4 (Sell) stock's cash balance was RMB 101.3 billion, while cash flow from operating activities was RMB 111.8 billion. Capital expenditure for the period reached RMB 50.9 billion, down 17.5% from the year-ago level.
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