August 14, 2013 (Chinavestor) Development and Capitalized Exploration to increase
In our view, Petrochina’s cash flow seems to be exhibiting changes, due to an increase in outside financing and a decrease in transactions occurring from current operations. 2011 Q1 Cash from Operations (OCF) were RMB 65,940 millions and Cash from Financing Activities (CFF) posted at RMB 54,582 million. Comparing the current cash position of Petrochina, OCF was RMB 17,093 million and CFF RMB 119768 million, displaying acute changes in how Petrochina has managed cash flows.
Fig 6 - Petrochina; Leverage on the increase whilst organic growth declines
From this trend, Petrochina’s finances are utilizing extra debt QoQ and they will need to increase their operating activities and adapt to varying taxes to avoid carrying on too much outside financing. By analysing the downward trend, the decrease in OCF is also due to the increase in taxes PTR pays. Payments of these taxes and levies increased yearly from 2010; 27% in FY11 and 25% in 2012. Whilst Petrochina has hedging policies to mitigate the effects of foreign exchange rates, protecting their funds from state government impositions is much more difficult.
PTR’s capital expenditures (CAPEX) have risen steadily over the course of the five fiscal periods. PTR’s outlook on their current oil reserves may seem underwhelming, given their exposure to areas maturing in oil production.
CFI increased 17% in 2012 from 2011, primarily due to extra CAPEX amounting to RMB 311,744 million. This was a rise of 16% from 2011’s capital expenditures of RMB 267, 975 million. Whilst acquisitions and disposals contributed to a small portion of CFI inflows and outflows, CAPEX generated the largest outflows. In 2011 however, CFI decreased 3% to RMB 283638 million even though CAPEX had increased by 3.4%. This fiscal year had less outflows in its investing activities due to a decrease in acquisitions of investments in associates and jointly controlled entities.
Fig 7 - Petrochina; Increase cash investing needed to maintain and grow
Petrochina has new natural gas and oil fields to explore in the near future including an oil well in Canada and Songliao Basin. PTR needs to maintain the output of the Daquing oil field whilst their ‘Peak Growth in Oil and Gas Reserves’ program will devote extra CAPEX to maintaining the Tarim Basin, Sichuan Basin and Bohai Bay Basin. There is no doubt that PTR, a large E&P company which assigns over 64% of funds to this segment alone, will need to invest heavily to meet the requirements for further high-impact undertakings.
The vast amount of funds is injected into Exploration and Production. In 2012, CAPEX had increased to RMB 227,211 million from RMB 162,154 million. Petrochina has also decreased the amount spent on other operations for 2012 as oppose to 2011. E&P expenditure had increased 7.4 % from 57%, whilst Refining and Chemicals expenditure was reduced by 5 %, Natural Gas & Pipeline 1.3% reduction and the Marketing distribution by 1.1 %.
Fig 8 - Petrochina; Focus continues to move to E&P operations
2013 estimates display a forward emphasis on E&P, increasing expenditure to approximately RMB 239,600 million representing a share of 67%. Overseas operations in the Middle East should aid the efforts to extract further reserves. The Guangdong, Huabei, Sichuan and Yunnan Petrochemical projects will expel further capital from PTR’s cash flow. It is expected that the Refining and Chemicals segment would amount to RMB 32,400 million, however, for PTR’s operations, these estimates are bound to increase due to unexpected operations, political and economic uncertainties which have affected PTR performance in prior fiscal years. Exposure to mature reserves will also need to be overlooked as this will pose a threat to production power and increase their asset retirement obligations.
The increase in demand for Natural gas will impact PTR, who need to import the commodity in higher amounts to satisfy PRC and NDRC requirements. The Zhongwei-Guiyang, Third West-East, Third and Fourth Qingtie pipelines will contribute vastly to how much is expelled on capital as these remain key oil and gas projects in 2013.
To be continued...