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Edited Transcript of 601857.SS earnings conference call or presentation 26-Mar-20 9:00am GMT

Full Year 2019 PetroChina Co Ltd Earnings Call (Chinese, English)

Bejing Mar 30, 2020 (Thomson StreetEvents) -- Edited Transcript of PetroChina Co Ltd earnings conference call or presentation Thursday, March 26, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Enlai Wu

PetroChina Company Limited - Secretary to the Board of Directors

* Houliang Dai

PetroChina Company Limited - Chairman of the Board

* Liangwei Duan

PetroChina Company Limited - Executive Director & President

* Shouping Chai

PetroChina Company Limited - CFO

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Presentation

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Enlai Wu, PetroChina Company Limited - Secretary to the Board of Directors [1]

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Good afternoon, ladies and gentlemen. I'm Wu Enlai, Board Secretary of PetroChina. On behalf of PetroChina, I welcome you to our 2019 Annual Results Announcement.

First, may I introduce the Board and management members here: Mr. Dai Houliang, Chairman; Mr. Duan Liangwei, Executive Director and President; Mr. Li Luguang, Vice President; Mr. Chai Shouping, CFO; Mr. Ling Xiao, Vice President; Mr. Yang Jigang, Vice President.

The announcement includes: first, a review of the financial performance in 2019; second, operational performance overview in 2019 and the outlook for 2020; third, remarks by Chairman.

Now the floor will be given to Mr. Chai for a financial review in 2019.

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Shouping Chai, PetroChina Company Limited - CFO [2]

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Thanks. Now I will walk you through the company's financial performance in 2019. In 2019, the company realized revenue CNY 2.52 trillion, up 6% year-on-year; operating profit, CNY 121.762 billion, down 1% year-on-year; net profit attributable to parent company shareholder, CNY 45.682 billion, down 13.9% year-on-year; EPS CNY 0.25, down CNY 0.04 year-on-year.

The company, based on international crude price trend, factors and business operations, continuously optimized investment structure. In 2019, CapEx was CNY 296.776 billion, up 15.9% year-on-year, generally reasonable and under control. As the important ground for the company's growth, E&P remains a focus of investment. CapEx for E&P reached CNY 230.117 billion, taking up 77.54% of the total and up 0.97 percentage points.

The company aimed for low-cost development and strove to achieve costs down and profit up. Main costs were well under control. In 2019, the company realized lifting cost, $12.11 per barrel, down 1.6% year-on-year; refining per unit cash cost, CNY 168.64 per ton, flat year-on-year; per-ton marketing cost, CNY 330.76, up 3.5% year-on-year due to DD&A, freight, staffing costs and sales all up. The company properly arranged investments, strengthened asset management and optimized debt structure. The financial status was sound in general. By December 31, 2019, the company realized total assets, CNY 2.73 trillion, up 12% versus the end of 2018. Debt-to-asset ratio, 47.2%, up 4.9 percentage points versus the end of 2018. If excluding the effect of new leasing principle, it went up 1.3 percentage points versus the end of 2018. Gearing ratio, 24.4%, up 1.7 percentage points versus the end of 2018.

The company took cash flow management seriously. The FCF was CNY 39.924 billion. The cash flow from operating activities reached CNY 359.6 billion, up CNY 6.354 billion or 1.8%. FCF, CNY 39.924 billion, down 53.5% year-on-year. We saw this because there was higher input in E&P and higher cash CapEx. We will continue to improve capital management and keep a generally healthy cash flow to underpin the company's development.

In 2019, E&P segment realized an operating profit, CNY 96.097 billion, up 30.7%. E&P remained a major profit driver. Due to price changes in oil, gas and other products, profit went down by CNY 14.015 billion. Average realized oil price, $60.96 per barrel, down 10.7% year-on-year. Due to sales changes in oil, gas and other products, profit grew up by CNY 28.05 billion. In this part, crude sales hiked and increased profit by CNY 18.76 billion. Gas sales ramped up and increased profit by CNY 8.657 billion. Due to lower operating expenses and others, profit grew by CNY 8.543 billion. Due to smaller DD&A and asset impairment, profit went up by CNY 10.748 billion. Due to smaller taxes apart from income tax, profit went up by CNY 5.18 billion. Due to less SG&A costs, profit went up by CNY 2.477 billion. Due to higher purchase expenses, profit went down by CNY 10.696 billion.

In 2019, Refining and Chemicals segment realized an operating profit, CNY 13.764 billion, down 69.2% year-on-year. Refining business saw an operating profit, CNY 10.337 billion, down CNY 26.54 billion, in which, due to lower gross profit, profit down by CNY 33.334 billion; due to higher refining volume, profit up by CNY 3.489 billion; due to lower other expenses, profit up by CNY 3.304 billion. This is because SG&A costs went down. Profit went up CNY 1.57 billion.

Provision of asset impairment was lower year-on-year. Profit grew by CNY 1.114 billion. Chemicals business has seen an operating profit, CNY 3.427 billion, down CNY 4.396 billion. Due to chemical product price changes, profit down CNY 2.518 billion. Due to chemical sales changes, profit up CNY 18.202 billion. Due to lower operating expenses, profit went up by CNY 2.583 billion. In this part, SG&A fees went down, thus profit went up by CNY 1.559 billion. Provision of asset impairment went down. Profit went up by CNY 0.834 billion.

In 2019, the marketing segment saw a loss of CNY 0.565 billion, the loss down by CNY 5.885 billion. Due to oversupply of refined oil and fierce competition in the Chinese market, low price in-place rate and our efforts for company-wide market-oriented pricing, loss reached CNY 6.5 billion, down CNY 5.276 billion. Due to higher gross profit, profit up CNY 4.855 billion; due to higher sales, profit up CNY 0.874 billion; due to higher operating expenses, profit down CNY 0.453 billion. International trade saw an operating profit, CNY 5.935 billion, up CNY 0.609 billion year-on-year. In 2019, our Natural Gas and Pipeline segment saw an operating profit, CNY 26.108 billion, up 2.3% year-on-year. Gas marketing business saw a loss of CNY 16.139 billion. Loss is up by CNY 46 million.

Domestic average city gate price, CNY 1.82 per cubic meter, up 4.5% year-on-year. Domestic gas profit, CNY 14.57 billion, up CNY 5.757 billion; imported gas and LNG net loss, CNY 30.71 billion, up CNY 5.803 billion; pipeline transmission business profit, CNY 36.59 billion, up JPY 0.27 billion; city gas business profit, CNY 15.723 billion, profit up CNY 0.6 billion; due to higher operating expenses, profit down CNY 0.23 billion.

The company values return for shareholders and keeps a stable dividend payout policy since 2016 as low oil prices linger. The company pays 45% of IFRS-based net profit attributable to parent company shareholders plus special dividend as return for shareholders. To bring better return to our shareholders, the Board recommends a year-end dividend, CNY 0.6601 -- CNY 0.06601 per share. Dividend payout ratio, 70%. It includes 45% of IFRS-based net profit attributable to parent company shareholders, CNY 0.04243 per share; and special dividend, CNY 0.02358 per share.

Next, let's welcome Mr. Duan Liangwei for a performance review in 2019 and the outlook for 2020.

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Liangwei Duan, PetroChina Company Limited - Executive Director & President [3]

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Thank you, Mr. Chai. Now I'll review the company's performance in 2019 and the outlook for 2020.

In 2019, the company faced bigger economic downward pressure, volatile international oil prices and fierce competition in domestic oil and gas market. PetroChina is committed to sound growth through more efforts in optimized production, structural adjustment, reform and innovations, risk management and programs for costs down and profit up. As a result, main production indices saw stable growth, and operational performance was within expected range.

In 2019, the company's main production indices saw stable growth, and operational performance was within expected range. We increased efforts in domestic E&P and enhanced reserves and production. We deepened international cooperation and saw steady progress in overseas business. We aimed for less low-value, refined products and more chemicals with steady progress in the transformation of Refining and Chemicals business. We explored market for refined products and saw growth in refined oil sales. We expanded end-user market to enhance profits.

Gas and pipeline transmission business was sound. Domestic exploration and production were enhanced with increased reserves and output. In 2019, we made breakthroughs in domestic risk exploration, concentrated exploration in key areas and refined exploration in the eastern area, forming several uncompartmentalized reserves, including Southern Junggar Basin saw high-yield oil and gas flow of more than 1,000 cubic meters a day. This is a historical exploration breakthrough in the basin and a likely large-scale reservoir. The triassic source work of the Erdos Basin had discovered reserves of over 1 billion ton oil with 0.358 billion tons of proven geological reserves and 0.693 billion tons of predicted geological reserves, showing a great prospect of exploration in source rock in the basin.

Tarim Basin saw major discoveries in several traps and found larger-scale oil and gas reservoirs likely to form a new 1 trillion cubic meter scale gas area after the Karakash area. Southern Sichuan Basin saw big achievements in shale gas exploration with new proven reserves, 740.97 Bcm; recoverable reserves, 178.4 Bcm, forming over 1 trillion cubic meter shale gas reserves. Several shale gas wells, more than 3,500 meters deep have gained industrial gas flow, showing a good prospect of medium and deep shale gas. New discoveries in Sichuan Basin brought new prospects for developing the reserves at scale. New discoveries of tight gas exploration in Jilin and Sichuan showing the prospect of tight gas E&P in Shaanxi main formation.

New proven oil and gas geological reserves in China hit record high since listed. In 2019, the company strove to stabilize production of mature fields and accelerated production in key areas such as Changqing, Tarim, Xinjiang and Southwest region. Crude output rebounded, and gas output recorded a 5-year high. Oil and gas equivalent output in Changqing Oilfield exceeded 57 million tons with over 40 Bcm of gas. Xinjiang Oilfield crude output hiked by 1 million tons, up 8.7%, hitting a record high. Shale gas output in Southwest oil and gas field increased 3.6 Bcm, an increase of 116%. Crude output of Daqing Oilfield reached 30.9 million tons. The annual decline narrowed from 2 million tons since 2015 to 1.14 million tons.

We deepened international cooperation and saw steady progress in overseas business. In 2019, the company involved in bilateral and multilateral events to deepen international cooperation. We signed an MOU to expand cooperation with Kazakhstan and a contract for extension of Oman Block 5. Our risk and rolling exploration overseas has seen key progress. Chad, Doseo basin and Bongor basin are likely to be 2 prospects with more than 100 million-ton reserve each. In Bilma, Niger, a prospect with 50 million tons of reserves, was unveiled. Major discoveries were made in mature exploration areas of PK and Aktobe in Kazakhstan. Steady progress was seen in key projects, Chad Project Phase 2.2 and Halfaya Phase 3 came on stream. Rumaila in Iraq and Aktobe in Kazakhstan operated beyond plans. In 2019, the company realized crude output, 0.91 billion barrels, up 2.1%; domestic crude output, 0.74 billion barrels, up 0.8% year-on-year; marketable gas output, 3.9 trillion cubic feet, up 8.3%; domestic gas output, 3.6 trillion cubic feet, up 9.3%; oil and gas equivalent output, 1.56 billion barrels, up 4.6%; overseas oil and gas equivalent output 0.22 billion barrels, taking up 13.8% of the company's total, up 5.7%.

We aim for less low-value refined product and more chemicals with steady progress in the transformation of Refining and Chemicals business. The company optimized resources allocation and properly arranged utilization rate for efficient refineries. We realized crude run, 1.228 billion barrels, up 4.1% year-on-year. We produced refined oil 0.118 billion tons, up 6% year-on-year; gasoline, up 10.1%; kerosene, up 15.3%; diesel, up 0.6%. We optimized product mix and reduced diesel-gasoline ratio to 1.08.

In 2019, we produced chemical product, 25.756 million tons, up 5.5% year-on-year; ethylene output, 5.863 million tons. If excluding the effect from overhauled refineries, the production was basically at full capacity. We saw early results of the model for less low-value, refined products and more chemicals.

Huabei Petrochemical plant revamping was completed and put onstream. Steady progress was made in Guangdong Petrochemical Company and the structural reform of Daqing Petrochemical Company. Ethane-to-ethylene projects in Tarim Oilfield and Changqing Oilfield were accelerated. We explored market for refined products and saw growth in refined oil sales. The company, facing challenges of oversupply and fierce competition, mobilized resources in China and abroad, increased efforts in refining strategic and differentiated marketing.

In 2019, the company realized refined oil sales, 0.188 billion tons, up 5.1% year-on-year; gasoline sales, up 7.4%; kerosene, up 2.7%; diesel, up 3.8%; refined oil sales in China, 0.119 billion tons, up 2.3%; gasoline sales, up 2.5%; diesel, up 3.4%; kerosene, down 6.1%. We worked on sales network building, occupied locations in premium markets and strategic areas. The number of service stations rose to 22,365, up 582 year-on-year. International trade exceeded 0.4 billion tons, up 27.4% year-on-year.

We expanded end-user market to enhance profits. Our gas and pipeline transmission business was sound. We worked to develop a system of gas production, supply, storage and marketing; promoted contract-based gas sales; and implemented national price policies to drive market-based prices for higher profits. In 2019, we realized gas sales, 259 Bcm, up 19.5%; gas sales in China, 171.4 Bcm, up 7.4%. We carried out a 3-year action plan for end-user market development and made progress in the collaboration with Heilongjiang, Xinjiang and cities of Wuhan, Xiangtan. A batch of projects in prefecture cities were delivered. We optimized pipeline network operation with enhanced safety management.

Phased progress was made in reducing existing risks. We pushed forward key engineering construction projects. The northern part of China-Russia Gas Pipeline East Section came onstream, so did another 21 connectivity projects. We strengthened sci-tech innovation to improve growth momentum. In 2019, the company promoted sci-tech innovations. Breakthroughs were made in E&P technologies on large conglomerates and deep marine cabinets, et cetera. The Refining and Chemicals technologies on large ethylene projects and new products of high value-added synthetic materials were improved. We conducted advanced basic science and applied fundamental researches to support major engineering construction and production operations. To address the difficulty of developing the huge thick, complex carbonate reservoirs in the Middle East, we developed efficient theories and technology, supporting a growth of crude output by 90x in the region over the past decade.

Our high-efficiency carbonate project, which operates under complex conditions in the Middle East with a capacity of 100 million tons, was awarded first price of the national sci-tech progress. The invention of a well-locking method and unit for rock brittleness evaluation de-bottleneck for continental shale oil production in China and improves the detection accuracy of rock brittleness under complex geological conditions, which was awarded the gold price in a China patent award.

We paid close attention to safety accountability and saw a better HSE situation. In 2019, the company saw 0 [bid] or above accident in our production. Emission of COD went down 4.9%; ammonia and nitrogen, down 13.4%; sulfur dioxide, down 9.8%; oxynitride, down 7.9%. Energy conservation was achieved 128% of target; water conservation, 120% of the target. We actively respond to the COVID-19 epidemic and falling oil prices, made an action plan in 2020 to improve quality and efficiency. We will optimize investment structure for higher returns, strengthen industrial value chain coordination and improve financial operations to create benefits and control costs. We will further implement performance-based remuneration, seek momentum from sci-tech, drive market-based reform to ensure smooth production and operation and healthy financial status.

E&P segment will make more efforts on exploration, reprioritize the construction of production capacity projects based on efficiency assessments and strive to increase economic recoverable reserves and profitable output. Refining and Chemical segment will focus on transformation and upgrading, produce less low-value refined products and more chemicals, support key projects underway and prepare new projects with staggered schedules. Marketing segment will focus on developing premium markets, optimize service stations construction, eyeing on the market change to increase unusual sales of refined oil.

Natural gas and Pipeline segment will ensure the construction of key pipe network projects and continue to develop the natural gas market and terminal facilities to improve the value of gas chain. We are working on a plan of linkage with oil prices. We will follow our principles to focus on key projects, realize costs down and profit up, make ends meet and be foresighted for solutions. Based on that, we will optimize the business development and investment plan in 2020.

Ladies and gentlemen, in 2020, the company will continue to deepen reform and innovation, improve corporate value, strive to be a first-class international energy company and bring better return to shareholders. Thank you.

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Enlai Wu, PetroChina Company Limited - Secretary to the Board of Directors [4]

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Thanks, Mr. Duan. Next, the floor will be given to Chairman, Mr. Dai Houliang.

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Houliang Dai, PetroChina Company Limited - Chairman of the Board [5]

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Ladies and gentlemen, friends, good afternoon. For COVID-19 prevention and control, we choose to announce the 2019 annual result through teleconference. First, on behalf of PetroChina, I warmly welcome all of you joining this meeting. Thank you for the long-time attention and support to PetroChina. I hereby send our best wishes in spring.

Yesterday, we convened a shareholders' meeting on which the resolution on adding new directors of PetroChina was passed. On the Board meeting afterwards, Chairman and Vice Chairman of PetroChina were elected, and new President was appointed as well. During the convening of the shareholders' meeting and Board meeting, I received letters from our shareholders. They expressed support to the Board of Directors and also proposed very good suggestions on issues faced by our company. Taking this opportunity, I wish to express my sincere gratitude again.

Just now, the management has briefed you on our annual result. In the past year, our oil and gas business continued to show good momentum of growth with domestic oil production increased. Gas production registered highest growth rate in the past 5 years. Risk exploration made key breakthrough, both home and abroad. Resources base further cemented, and financial status remained sound.

Since this year, the oil and gas market saw abrupt changes, which aroused great concern of all walks of life. The COVID-19 has spread worldwide. Global oil and gas consumption and demand is slowing down remarkably. Especially, international oil price plummeted recently, deteriorating oil companies' operation pressure. However, we take comfort to see that there is positive change in China's epidemic prevention and control situation. The Chinese government's work in production restoration measures are paying off. The economic and social development is accelerating, recovering. The oil and gas market demand is climbing gradually.

The Board and management of our company will forge ahead to handle the risks and difficulties and endeavor to render better performance. We will focus more on strategy guidance. In resolutely implementing resources strategy, we will conduct efficient exploration and improving exploration success rate, adding scale recoverable reserves to consolidate resources base. We will figure prominently the efficient development and maintain a generally steady production of oil and relatively fast growth of gas.

In resolutely implementing market strategy, we will be customer-centered and market-oriented, targeting at maximizing shareholders' value. We will speed up Refining and Chemicals transition and upgrading, optimize crude source pool, reduce feedstock costs, be more competitive on basic chemicals and vigorously develop high-end and specialty fine chemicals. We will strengthen building the end users capacity for oil and gas marketing to ensure value realized across the industry chain. In resolutely implementing internationalization strategy, we will have a quality operation of existing projects, make more efforts in developing new projects, keep optimizing strategic layout and asset structure and enhance international operation level and capability. In resolutely implementing innovation strategy, we will make more research input, tackle key technological problems, improve innovation capability and give full play of science and technology's underpinning and leading role.

We will focus more on green and low-carbon development. We will continue to strengthen the building of gas production, supply, storage and marketing system; improve diversified gas supply system; promote scale and effective development of shale gas; shore up gas storage peak shaving capability as soon as possible; maintain the fast-growing momentum of gas business. We will accelerate the study on new energy and alternative energy business layout; beef up efforts on tackling key technological problems and capacity voting for solar, wind, hydrogen, biomass and geothermal energies in a bid to build a green and sustainable energy enterprise.

We will focus more on digital transition and smart development. We will vigorously promote deep convergence of IT and all our businesses; speed up the industrial application of technologies such as AI, Big Data, IoT in the oil and gas business; proceed with the building of IT system and cognitive computing platform; keep improving digitalization and intelligentization; build smart oil and gas fields, smart refineries and smart gas stations in an orderly way. We will take digital transition as an opportunity to push forward the modernization of corporate governance system and governance capability. We will focus more on value creation.

In face of the low oil price challenge, coupled with COVID-19, we are carrying out quality and efficiency enhancement across the board. Dealing with market fluctuation head on, we optimize production and operation, adjust production capacity building pace, optimize resources allocation and product mix, make more efforts in marketing, improve internal management and strictly control costs and expenditure. We will pay high attention to the changes in the capital market, intensify corporate value management, enhance corporate growth potential and value-creation capability and bring bigger value for our shareholders.

It has been 20 years since PetroChina's entry into the capital market. Looking back, our shareholders, colleagues and friends of the capital market and media have been proceeding with us shoulder to shoulder despite all difficulties. Looking ahead, I wish you will continue to care and support our development. We look forward to pressing ahead with you for embracing splendor and share the value and achievements from PetroChina's growth. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]