PetroChina (PTR) Q3 Earnings Jump On Oil Rebound, Cost Cuts

Chinese oil and gas giant PetroChina Company Limited (NYSE:PTR) announced third-quarter 2017 earnings of RMB 4,690 million or RMB 0.03 per diluted share, compared with RMB 1,200 million or RMB 0.01 per diluted share a year earlier.

The positive comparisons can be primarily attributable to higher oil prices and strict cost control, which helped its biggest unit — exploration and production — to swing to profitability. Moreover, China’s dominant oil and gas producer’s total revenues for the three months under consideration rose 17.1% from the year-ago period to RMB 481,795 million.

However, PetroChina’s earnings per ADR of 45 cents missed the Zacks Consensus Estimate by a penny on deteriorating results at its refining unit.

Chinese Oil Majors’ Profit Rises

PetroChina followed other big energy names from the country — CNOOC Ltd. (NYSE:CEO) and Sinopec (NYSE:SNP) — in reporting higher third-quarter numbers.

CNOOC, China’s dominant producer of offshore crude oil and natural gas, reported surging profits on higher commodity prices.

Meanwhile, Sinopec also experienced a jump in its income as the largest petroleum and petrochemical company in Asia saw strong product demand amid stringent cost controls.

Nine-Month Segmental Performance

Upstream: PetroChina posted disappointing upstream output for the nine months ended Sep 30, 2017.

In particular, crude oil output, accounting for 61% of the total, fell 5.2% from the year-ago period to 660.1 million barrels (MMBbl). On the other hand, marketable natural gas output was up by 4.5% to 2,539.2 billion cubic feet (Bcf). Overall, PetroChina’s total production of oil and natural gas declined 1.6% year over year to 1,083.4 million barrels of oil equivalent.

However, average realized crude oil price during the first nine months of 2017 was $48.76 per barrel, representing a 36.2% jump from the year-ago period. Further, natural gas price rose 8.6% year-over-year to $5.07 per thousand cubic feet (Mcf). This helped PetroChina’s upstream (or exploration & production) achieve an operating income of RMB 10,983 million — turning around from the year-ago operating loss of RMB 3,949 million. A tight leash on oil and gas lifting costs that decreased 1.9% from the same period last year, also helped results.

Downstream: The Beijing-based company’s Refining & Chemicals business generated an operating income of RMB 27,732 million. This is down 19.2% from the year-earlier period’s earnings of RMB 34,311 million. The deterioration can be attributed to government-capped prices of refined-products (particularly gasoline and diesel) that do not allow PetroChina to pass high refining costs on to consumers. This was partly offset by the group’s strict cost control initiatives.

PetroChina’s refinery division processed 744.5 MMBbl of crude oil during the nine-month period, up 5.2% from 2016. The company produced 6,880 thousand tons of synthetic resin in the period (reflecting a rise of 1.5% year over year), besides manufacturing 4,280 thousand tons of ethylene (up 3.2%). It also produced 67,591 thousand tons of gasoline, diesel and kerosene during the period compared with 63,669 thousand tons a year earlier.

Natural Gas & Pipelines: Revenue rose 18.3% to RMB 206,578 million on improving natural gas volumes. However, PetroChina lost RMB 16,990 million on sales of imported natural gas and liquefied natural gas (LNG) from Central Asia and Burma, RMB 6,420 wider than the first nine months of 2016.

Nevertheless, a rise in natural gas prices, optimal utilization of its marketing channels and resources, together with pipeline transportation profitability, helped the Chinese behemoth’s segment earnings, which came in at RMB 18,045 million in the period under review. This is a slight improvement from the year-earlier profit of RMB 17,857 million. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Marketing: The state-owned group sold 125,968 thousand tons of gasoline, diesel and kerosene during January-September 2017, marking an increase of 6.1% year over year. Greater volumes were accompanied by expanded refined products exports, stress on high-margin products and numerous marketing initiatives due to which sales for the division were up 29.8% to RMB 1,205,650 million.

But adverse factors including abundant domestic refined products supply and fierce competition dragged down PetroChina’s profits to RMB 5,734 million from RMB 6,805 million in the same period of last year.

Liquidity & Capital Expenditure

As of Sep 30, 2017, PetroChina’s cash balance was RMB 169,469 million, while net cash flow from operating activities was RMB 244,295 million for the first three quarters of this year. Capital expenditure for the period was RMB 124,552 million, 9.1% higher than the year-ago level.

Zacks Rank & Stock Picks

PetroChina holds a Zacks Rank #3 (Hold).

Meanwhile, one can look at a better-ranked energy player like HollyFrontier Corporation (NYSE:HFC) that sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

HollyFrontier is one of the largest independent refiners and marketers of petroleum products in the U.S. The Dallas-TX based company has seen the Zacks Consensus Estimate for 2017 and 2018 increase 16.4% and 8.6%, to $1.77 and $2.27 per share, respectively, over 30 days.

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