PetroChina (PTR) Half-Year Profits Surge On Crude Revival

Chinese oil and gas giant PetroChina Company Limited (NYSE:PTR) announced first-half 2017 earnings of RMB 12,676 million or RMB 0.069 per diluted share compared with RMB 531 million or RMB 0.003 per share a year earlier. Moreover, China’s dominant oil and gas producer’s total revenues for the six months rose 32% from the year-ago period to RMB 975,909 million.

The positive comparisons can be primarily attributable to higher oil prices, which helped its biggest unit — exploration and production — to swing to profitability. Interestingly, the company has decided to pay all of its first-half profit of RMB 12,676 million as interim dividend to its stockholders.

PetroChina followed other big energy names from the country — CNOOC Ltd. (NYSE:CEO) and Sinopec (NYSE:SNP) — in reporting encouraging results.

CNOOC, China’s dominant producer of offshore crude oil and natural gas, came up with its best first-half profits since 2014 on higher output and commodity prices.

Sinopec also saw its profit surge as the largest petroleum and petrochemical company in Asia managed to generate strong petrochemical margins.

Segmental Performance

Upstream: PetroChina, one of the world's largest oil companies by market value and 35% the size of ExxonMobil Corp. (NYSE:XOM) , posted disappointing upstream output for the six months ended Jun 30, 2017.

In particular, crude oil output, accounting for 60% of the total, fell 7.4% from the year-ago period to 435.8 million barrels (MMBbl). On the other hand, marketable natural gas output was up by 4.4% to 1,738.7 billion cubic feet (Bcf). Overall, PetroChina’s total production of oil and natural gas declined 3% year over year to 725.7 million barrels of oil equivalent.

However, average realized crude oil price during the first half of 2017 was $49.68 per barrel, representing a 50.1% jump from the year-ago period. This buoyed upstream (or exploration & production) segment operating income to RMB 6,916 million — turning around from the year-ago operating loss of RMB 2,419 million. A tight leash on oil and gas lifting costs that decreased 4.2% from the same period last year, also helped results.

Downstream: The Beijing-based company’s Refining & Chemicals business generated an operating income of RMB 15,837 million. This is down 42.4% from the year-earlier period’s earnings of RMB 27,474 million. The deterioration can be attributed to government-capped prices of refined-products (particularly gasoline and diesel) that do not allow PetroChina to pass high refining costs on to consumers. A 24.6% increase in operating expenses also hampered segment results.

PetroChina’s refinery division processed 475.2 MMBbl of crude oil during the six-month period, down 1.7% from 2016. The company produced 4,544 thousand tons of synthetic resin in the period (reflecting a fall of 2.3% year over year), besides manufacturing 2,837 thousand tons of ethylene (up 0.8%). It also produced 43,284 thousand tons of gasoline, diesel and kerosene during the period compared with 43,436 thousand tons a year earlier.

Natural Gas & Pipelines: Revenue rose 16.6% to RMB 142,649 million on improving natural gas prices and pipeline transportation profitability. However, higher natural gas import costs saw the Chinese behemoth face mounting operating expenses to the tune of 16.1%. Worryingly, PetroChina lost RMB 11,798 million on sales of imported natural gas and liquefied natural gas (LNG) from Central Asia and Burma, RMB 3,792 wider than the first half of 2016.

Nevertheless, a rise in natural gas sales and prices helped the Zacks Rank #3 (Hold) Chinese behemoth’s segment earnings, which came in at RMB 13,934 million in the period under review. This is a meaningful improvement from the year-earlier profit of RMB 11,431 million. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Marketing: The state-owned group sold 81.6 million tons of gasoline, diesel and kerosene during the half-yearly period, marking an increase of 7% year over year. Greater volumes were accompanied by expanded refined products exports, stress on high-margin products and numerous marketing initiatives.

As a result, PetroChina was able to counter the adverse factors — slow domestic refined products demand growth and fierce competition — to post a profit of RMB 5,682 million compared with RMB 4,609 million in the same period last year.

Liquidity & Capital Expenditure

At the end of the semester, PetroChina’s cash balance was RMB 114,538 million, while cash flow from operating activities was RMB 144,833 million. Capital expenditure for the period was RMB 62,339 million, 22.6% higher than the year-ago level.

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