Chinese energy giant PetroChina Co. Ltd. (PTR) announced its first quarter 2011 earnings of RMB 37.0 billion or RMB 0.20 per diluted share, compared with RMB 32.5 billion or RMB 0.18 per diluted share in the year-earlier period. Earnings per ADR came in at $3.05 (exchange rate: US$1.00 = RMB 6.55, 1 ADR = 100 shares).
The positive comparisons can be primarily attributable to higher commodity prices and stronger volumes amid robust domestic energy demand. PetroChina’s total revenue for the three months totaled RMB 446.0 billion, an increase of 39.9% from the year-earlier period.
Segmental Performance
Upstream: PetroChina, the world's most valuable oil and gas producer after ExxonMobil Corp. (XOM), posted strong upstream output growth during the three months ended March 31, 2011. Crude oil output rose 4.3% from the year-ago period to 219.1 million barrels (MMBbl), while marketable natural gas output was up 7.1% to 639.3 billion cubic feet (Bcf).
Average realized crude oil price during the first three months of 2011 was $91.85 per barrel, representing an increase of 31.2% from $70.01 per barrel in the corresponding period of the previous year. Average realized natural gas price was $4.43 per thousand cubic feet (Mcf), 35.1% above the year ago level of $3.28.
Downstream: PetroChina’s refinery division processed 250.1 MMBbl during the three-month period, up from 215.4 MMBbl in 2010. The company produced 1.494 million tons of synthetic resin in the period (a rise of 8.6% year over year), besides manufacturing 921 thousand tons of ethylene (up 1.4% from the first three months of 2010). It also produced 22.00 million tons of gasoline, diesel and kerosene during the period, as against 18.82 million tons a year earlier.
In marketing operations, the group sold 31.61 million tons of gasoline, diesel and kerosene during January – March 2011, an increase of 16.9% year over year.
Liquidity & Capital Expenditure
As of March 31, 2011, PetroChina’s cash balance was RMB 115.0 billion, while net cash flow from operating activities was RMB 65.9 billion. Capital expenditure for the period reached RMB 53.0 billion, down 9.6% from the year-ago level.
Our Recommendation
PetroChina is the largest integrated oil company in China. The firm’s activities include: exploration, development, production and sale of crude oil and natural gas, refining, transportation, storage and marketing of petroleum products, manufacture and sale of chemical products, and transmission of natural gas, crude oil and refined products.
Despite some near- to medium-term concerns that include heavy exposure to significantly mature-producing areas, high-priced gas imports and uncertainty regarding the impact of the newly rolled out national resources tax, the company’s long-term outlook looks compelling.
This is primarily based on PetroChina’s leverage to the fast growing Chinese market and the turnaround in commodity prices. Being one of the two Chinese integrated oil companies, PetroChina is well-positioned to capitalize on these favorable trends.
As such, we believe PetroChina is well positioned going forward and view it as an attractive investment. Our long-term Outperform recommendation is supported by a Zacks #2 Rank (short-term Buy rating).
PETROCHINA ADR (PTR): Free Stock Analysis Report
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