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On Mar 20, 2014, Chinese energy giant PetroChina Co. Ltd. (PTR - Analyst Report) announced full-year 2013 earnings of RMB 129.6 billion or RMB 0.71 per diluted share, against RMB 115.3 billion or RMB 0.63 per diluted share a year ago. The improvement can be primarily attributable to superior operations from the Refining and Chemicals business and outstanding results from the Natural Gas & Pipelines segment.

After the full-year 2013 results were announced, PetroChina opened at $102.22 per ADR the next day, up 2.6% from Thursday’s close.  

However, earnings per ADR came in at $11.45 (exchange rate: US$1.00 = RMB 6.2, 1 ADR = 100 shares), lower than the Zacks Consensus Estimate of $11.86. A deteriorating operating performance from upstream activities impacted the result.

PetroChina’s total revenue for the year increased 2.9% from the 2012 level to RMB 2,258.1 billion, driven by higher output.

Segmental Performance

Upstream: PetroChina posted strong upstream output growth during the twelve-month period ended Dec 31, 2013. Crude oil output rose 1.8% from the year-ago period to 932.9 million barrels (MMBbl), while marketable natural gas output was up 9.5% to 2,801.9 billion cubic feet (Bcf).

However, average realized crude oil price during 2013 was $100.42 per barrel, down from $103.65 per barrel in the previous year. This dampened the upstream (or exploration & production) segment’s profit by 11.8% to RMB 189.7 billion.

Downstream: The Beijing-based company’s Refining and Chemicals business incurred an operating loss of RMB 24.4 billion, narrower than the year-earlier period’s loss of RMB 43.5 billion. The improvement can be attributed to favorable pricing policy.

PetroChina’s refinery division processed 992.3 MMBbl during the twelve-month period, down from 1,012.5 MMBbl in 2012. The company produced 6.537 million tons of synthetic resin in 2013 (a rise of 7.4% year over year), apart from manufacturing 3.982 million tons of ethylene (up 7.9% from 2012). It also produced 90.3 million tons of gasoline, diesel and kerosene during the period, as against 91.0 million tons a year earlier.

Natural Gas & Pipelines: PetroChina’s natural gas business recorded a profit of RMB 28.9 billion in 2013, as against the year-earlier loss of RMB 2.1 billion. Increased natural gas output along with the pipeline’s restricted transmission expenses favored the result.

Marketing: In marketing operations, the state-owned group sold 159.13 million tons of gasoline, diesel and kerosene in 2013, reflecting an increase of 3.8% year over year. However, rising operating expenses and tepid refined products demand led to a 53.9% year-over-year fall in segmental profits, bringing the figure to RMB 7.6 billion.

Liquidity & Capital Expenditure

At the end of 2013, PetroChina’s cash balance stood at RMB 51.4 billion, while cash flow from operating activities was RMB 288.5 billion. Capital expenditure for the period reached RMB 318.7 billion, down 9.6% from the year-ago level.

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 better-ranked players in the energy sector like Valero Energy Corp. (VLO - Analyst Report), Precision Drilling Corp. (PDS - Snapshot Report) and Range Resources Corp. (RRC - Analyst Report). All the stocks sport a Zacks Rank #1 (Strong Buy).

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