Chinese energy giant PetroChina Co. Ltd. (PTR) announced 2010 earnings of RMB 140.0 billion or RMB 0.76 per diluted share, compared with RMB 103.4 billion or RMB 0.56 per diluted share a year earlier. Earnings per ADR came in at $11.34 (exchange rate: US$1.00 = RMB 6.7, 1 ADR = 100 shares), higher than the Zacks Consensus Estimate of $10.92.
The positive comparisons can be primarily attributable to robust performance from the Beijing-based company’s ‘Exploration and Production’ segment – its most important profit contributor – on the back of higher oil prices and stronger volumes amid robust domestic energy demand.
PetroChina’s total revenue for the year totaled RMB 1,465.4 billion, an increase of 43.8% from the year-earlier period.
Upstream
PetroChina, the world’s most valuable oil and gas producer after Exxon Mobil Corp. (XOM) and Petrobras (PBR), posted strong upstream output growth during the twelve months ended December 31, 2010. Crude oil output rose 1.7% from the year-ago period to 857.7 million barrels (MMBbl), while marketable natural gas output was up 5.2% to 2,221.2 billion cubic feet (Bcf).
In particular, average realized crude oil price during 2010 was $72.93 per barrel, representing an increase of 35.3% from $53.90 per barrel in the corresponding period of the previous year. This drove the upstream (or exploration & production) segment profit by 46.4% to RMB 153.7 billion.
Downstream
PetroChina’s refinery division processed 903.9 MMBbl during the twelve-month period, up from 828.6 MMBbl in 2009. The company produced 5.550 million tons of synthetic resin in 2010 (a rise of 23.9% year over year), besides manufacturing 3.615 million tons of ethylene (up 20.9% from the same period in 2010). It also produced 79.5 million tons of gasoline, diesel and kerosene during the period, as against 73.2 million tons a year earlier.
However, the company’s ‘Refining & Chemicals’ business registered an operating profit of RMB 7.8 billion, down 54.7% from the year-earlier period, hurt by lower refining margins in the midst of rising oil prices.
In marketing operations, the group sold 120.83 million tons of gasoline, diesel and kerosene during January–December 2010, an increase of 19.3% year over year.
Liquidity & Capital Expenditure
At the end of 2010, PetroChina’s cash balance was RMB 45.7 billion, while cash flow from operating activities was RMB 310.7 billion. Capital expenditure for the period reached RMB 276.2 billion, up 3.5% from the year-ago level.
2011 Guidance
Going forward, leverage to the fast growing Chinese market and the turnaround in energy demand is expected to be the main growth drivers for PetroChina. Being one of the two Chinese integrated oil companies, PetroChina – together with Sinopec (SNP) – is well-positioned to capitalize on these favorable trends. The company’s 2011 results are likely to benefit from increased production, higher energy prices and contributions from overseas asset additions.
PetroChina aims to boost overall output by 5.4% this year, while oil production is expected to rise 3.3% year-over-year from 2009 levels. China’s dominant crude producer has projected an investment of RMB 350.6 billion in 2011, up 26.9% year-over-year.
Our Recommendation
Even though PetroChina has a Zacks #2 Rank (short-term Buy rating) in the short run, we are Neutral on the ADRs in the longer term.
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