On Apr 28, Chinese energy giant PetroChina Co. Ltd. PTR announced first-quarter 2016 loss of RMB 13.8 billion, or RMB 0.08 per diluted share. In the year-ago quarter, the company had reported a profit of RMB 6.2 billion or RMB 0.03 per diluted share. Earnings per ADR came in at U.S$1.22 (exchange rate: US$1.00 = RMB 6.5, 1 ADR = 100 shares).
On top of that, PetroChina’s total revenue for the quarter decreased 14% from the year-earlier quarter to RMB 352.8 billion.
The negative comparisons can primarily be blamed on a free fall in realized crude price, which hampered upstream operations, the main business of PetroChina. The decline was partially compensated by excellent downstream operations that turned around to profit from the prior-year loss.
Most importantly, this is the first-ever quarterly loss reported by the integrated player from the time it was listed publicly in 2000.
Segmental Performance
Upstream: PetroChina posted strong upstream output growth during the three months ended Mar 31, 2016. Crude oil output – accounting for 62% of the total production – rose 1.4% from the year-ago period to 242.7 million barrels (MMBbl), while marketable natural gas output grew 4.8% to 891.4 billion cubic feet.
Average realized natural gas price was almost $4.89 per thousand cubic feet, 21.7% below the year-earlier level. Moreover, average realized crude oil price was $27.27 per barrel, representing a considerable fall of 44.2% from the prior-year quarter. These led the segment to report loss of $20.3 billion against a profit of $17.3 billion in the January–March quarter 2015.
Downstream: The Beijing-based company’s ‘Refining & Chemicals’ business reported operating profit of RMB 14.7 billion, turning around from the year-earlier loss of RMB 5.1 billion.
PetroChina’s refinery division processed 247.2 MMBbl during the three-month period, down 2.5% from 253.5 MMBbl in the comparable quarter of 2015. The company produced 2.335 million tons of synthetic resin (up 11.5% year over year), apart from manufacturing 1.421 million tons of ethylene (up 12.5%). It also produced 22.31 million tons of gasoline, diesel and kerosene during the period against 23.35 million tons a year ago.
Natural Gas & Pipelines: PetroChina’s natural gas business reported an income of RMB 4,717 million in the first quarter 2016, lower than the year-earlier profit of RMB 7,355 million. This is due to lower natural gas prices.
Marketing: In marketing operations, the state-owned group sold 37.13 million tons of gasoline, diesel and kerosene during Jan–Mar 2016, reflecting a decrease of 1.5% year over year. However, higher marketing activities along with improved margins helped this segment to report to turn around to a profit of RMB 426 million from a loss of RMB 2,591 million in the year-ago quarter.
Liquidity & Capital Expenditure
As of Mar 31, 2016, PetroChina’s cash balance was RMB 100.5 billion, while net cash flow from operating activities was RMB 61 billion. Capital expenditure for the period was RMB 50.6 billion, down 6% from the year-ago level.
Zacks Rank
PetroChina currently carries a Zacks Rank #1 (Strong Buy), implying that the stock will significantly outperform the broader U.S. equity market over the next one to three months.
Some other stocks worth considering in the energy sector include Seadrill Partners LLC SDLP, Braskem SA BAK and Vanguard Natural Resources, LLC VNR. Seadrill Partners and Braskem sport a Zacks Rank #1 while Vanguard Natural carries a Zacks Rank #2 (Buy).
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