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Analyst Blog

On Oct 29, 2013, Chinese energy giant PetroChina Company Limited (PTR - Analyst Report) announced its third-quarter 2013 earnings of RMB 29.8 billion or RMB 0.16 per diluted share, compared with RMB 24.9 billion or RMB 0.14 per diluted share in the year-earlier period.

The improvement can be primarily attributable to reforms of retail pricing, improved operations from the Refining and Chemicals business and outstanding results from the Natural Gas & Pipelines segment.

However, earnings per ADR came in at $2.59 (exchange rate: US$1.00 = RMB 6.17, 1 ADR = 100 shares), failed to beat the Zacks Consensus Estimate of $3.31. Lower operating performances from upstream activities impacted the result.

PetroChina’s total revenue for the three months increased 5.5% from the year-earlier period to RMB 581.7 billion, driven by higher oil and gas equivalent output.

After the third quarter 2013 results were announced on Oct 29, 2013, PetroChina opened at $115.71 per share the next day, up 1.9% from the previous day’s close.

Segmental Performance

Upstream: PetroChina posted strong upstream output growth during the nine-month period ended Sep 30, 2013. Crude oil output rose 2.2% from the year-ago period to 698.0 million barrels (MMBbl), while marketable natural gas output was up 9.0% to 2,048.0 billion cubic feet (Bcf).

Average realized crude oil price during the first nine months of 2013 was $99.85 per barrel, down 3.6% from the corresponding period of the previous year. However, average realized natural gas price was $5.48 per thousand cubic feet (Mcf), 9.2% above the year-ago level of $5.02 per Mcf.

Lower crude oil price realization and higher operating expenses hampered the upstream (or exploration & production) segment’s profit by 10.0%, bringing down the figure to RMB 147.0 billion.

Downstream: PetroChina’s refinery division processed 734.5 MMBbl during the nine-month period, down 1.2% from 743.5 MMBbl in the year-ago period. The company produced 4.808 million tons of synthetic resin in the period (a rise of 11.1% year over year), besides manufacturing 2.920 million tons of ethylene (up 12.1% from the first nine months of 2012). It also produced 66.758 million tons of gasoline, diesel and kerosene during the period, as against 67.135 million tons a year earlier.

The company’s Refining & Chemicals business experienced an operating loss of RMB 20.0 billion, narrower than the loss of RMB 37.4 billion in the year-earlier period. The loss narrowed mainly because PetroChina cashed in on the market-friendly pricing policy.

Natural Gas & Pipelines: Due to a significant decrease in operating expenses and controlled transmission cost of the pipeline, PetroChina’s natural gas business incurred a profit of RMB 23.4 billion during the nine months 2013, up by a whopping 22.5 billion from the year-earlier level of RMB 0.9 billion.

Marketing: In marketing operations, the group sold 119.422 million tons of gasoline, diesel and kerosene during Jan–Sep 2013, reflecting a 5.2% year-over-year increase.

However, segment’s earnings fell 43.1% year over year to RMB 6.7 billion, owing to refined products’ lower demand both in the domestic market and abroad.

Liquidity & Capital Expenditure

As of Sep 30, 2013, PetroChina’s cash balance was RMB 165.3 billion, while net cash flow from operating activities was RMB 205.7 billion. Capital expenditure for the period reached RMB 201.7 billion, up from the year-ago level of RMB 189.3 billion.

Zacks Rank

PetroChina currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at energy stocks like Baytex Energy Corp. (BTE - Snapshot Report), VOC Energy Trust (VOC - Snapshot Report) and Matador Resources Co. (MTDR - Snapshot Report) that offer better prospects. All the stocks sport a Zacks Rank #1 (Strong Buy).

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