PetroChina First Half Profit Rises - Analyst Blog

Chinese energy giant PetroChina Co. Ltd. (PTR) announced its first half 2010 earnings of RMB 65.3 billion or RMB 0.36 per diluted share, compared with RMB 50.5 billion or RMB 0.28 per diluted share in the year-earlier period. Earnings per ADR came in at $5.29 (Exchange rate: US$1.00 = RMB 6.8, 1 ADR = 100 shares).

The positive comparisons can be primarily attributable to soaring oil prices and stronger volumes that more than offset weak refining margins. PetroChina’s total revenue for the six months totaled RMB 684.8 billion, an increase of 64.9% from the year-earlier period.

Upstream

The world’s second-most valuable oil and gas producer after Exxon Mobil Corp. (XOM) posted strong upstream segment results on the back of higher realized prices and production. Crude oil output rose 1.7% from the year-ago period to 424.7 million barrels (MMBbl), while marketable natural gas output was up 12.9% to 1,153.1 billion cubic feet (Bcf).

The average realized crude oil price during the first six months of 2010 was $72.42 per barrel, representing an increase of 70.6% from $42.46 per barrel in the corresponding period of the previous year. This pushed up the upstream (or exploration & production) segment profit by nearly 95% to RMB 73.4 billion.

Downstream

PetroChina’s refinery division processed 439.1 MMBbl during the six-month period, up from 389.3 MMBbl in 2009. The company produced 2.762 million tons of synthetic resin in the period (a rise of 36.1% year-over-year), besides manufacturing 1.809 million tons of ethylene (up 36.8% from the first half of 2009). It also produced 38.382 million tons of gasoline, diesel and kerosene during the period, as against 34.550 million tons a year earlier.

The company’s ‘Refining & Chemicals’ business experienced a 68.3% decline in its operating profit (from RMB 17.2 billion in the first half of 2009 to RMB 5.5 billion in the current year period), as refining margins began to fall due to the rise in crude oil prices.

In marketing operations, the group sold 59.52 million tons of gasoline, diesel and kerosene, an increase of 26.6%.

Liquidity & Capital Expenditure

As of June 30, 2010, PetroChina’s cash balance was RMB 127.3 billion. Cash flow from operating activities was RMB 147.5 billion. Capital expenditure for the period reached RMB 87.5 billion, up 12.1% from the year-ago level.

Our Recommendation

PetroChina, which currently retains a Zacks #5 Rank (short-term Strong Sell rating), 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.