(Aug. 29, 2009 - Chinavestor) Petrochina Co. Ltd. (NYSE:PTR) reported 2009 first six months interim results on Friday, sending its shares down 1.4% to $113.19 at the end. Total revenues fell 24.7% to RMB415,277 million ($ 60.744 billion) year-over-year (YoY) mostly on lower selling price of its products. Petrochina realized $51.6/barrel for the crude in the first six months of 2009, a decrease of 52.5% YoY. Net profit fell 7.2% to RMB50,501 million ($7.387 billion) thanks to the strong performance of the refining segment. But total crude output decreased to 417.7 million barrel in 2009 H1 from 438.8 million barrel same period last year, a drop of 4.8%. A 10.6% growth in natural gas output made up for some of the loss in shrinking oil output, resulting in a total oil and gas equivalent drop of 0.8% to 587.9 million barrels.
Looking behind the numbers, an interesting picture develops. Petrochina (NYSE:PTR) is the largest oil producer in China with significant oil refining capacity. But refining is the turf of Sinopec (NYSE:SNP), the largest refiner in all Asia, in terms of output. But as the following chart testifies, revenue from oil production and exploration fell 49.2% on lower oil price and shrinking output while the refining segment experienced a much less dramatic contraction from 2008 to 2009. As a result, revenues from refining exceeded that of oil production in the first half of 2009. Revenues of natural gas increased 13.5% but the total is still a fraction that of the oil or refining revenues.
Looking at profitability of the various segments, it becomes obvious that Petrochina (NYSE:PTR) experienced a major shift in profit centers in the first six months of 2009. According to company figures, profits from exploration & production fell 71.3% to RMB37,640 million ($5.505 billion) compared to a profit of RMB131,347 million ($19,212 billion) a year ago. Most of the fall in profits are a result of oil price drop, while some of it is lower oil production. But capital spending will be another squeeze in profits for the second half of the year if company estimates prove to be correct. According to Petrochina (NYSE:PTR) interim report, capital expenditure will increase to RMB97,000 million ($14.188 billion) in the second half of 2009 compared to a RMB38,804 million ($5.676 billion) in the first six months.
But refining segment experienced a dramatic change form last year as the segment swung back to profit in 2009 H1. According to the interim report, profit from refining amounted to RMB17,192 billion ($2.514 billion) compared to a loss of -RMB59,830 million (-$8.751 billion) same period last year. Such a dramatic improvement in profitability is attributed to two main factors.
- Price of crude, the raw material for refining, fell 52.5% YoY.
- Chinese regulators introduced five successive refined product price increases raising prices of gasoline, diesel and kerosene.
The natural gas segment contributed RMB9,867 million ($1.443 billion) in profits, an increase of 17.5% YoY.
Petrochina Board of directors approved a cash dividend of RMB0.12417/share or $1.8163/ADR if the ODR:ADR ratio of 100 is correct.
Looking forward the picture is not as bad though. With price of oil hovering around $70/barrel, oil exploration and production segment is expected to crank out 50% more profit than in the first six months. The refining segment is operating under assumption that the "fair profit" formula guaranteeing profits for refiners will stay in place and adjust resale prices of refined products according to the fluctuations of the crude price. The gas segment is strong and is expected to remain that way.
The bad news is that Petrochina (PTR) oil exploration growth is limited compared to CNOOC Ltd (NYSE:CEO), the other Chinese oil producer major. CNOOC Ltd. (NYSE:CEO) reported revenue and profit decline of -42.0% and -55.0%, respectively, but oil production grew by 15.2%! ("CNOOC Ltd. (CEO) - Behind 2009 H1 Numbers").
Petrochina is trading at a relatively high P/E compared to other international diversified oil companies.
This in turn limits upside potential for Petrochina (NYSE:PTR) for the short term. But profit of oil companies, subject to fluctuations of crude price, has been very volatile and is expected to remain so for the rest of 2009. Remember, higher oil price benefits CNOOC ltd. (NYSE:CEO) just as much as Petrochina, and with a growing production, CNOOC Ltd. looks to be a better bet - as long as oil stays near $70/barrel or more.
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