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PetroChina (PTR) 2019 Earnings Down, Warns of Coronavirus Impact

Zacks Equity Research

Chinese energy giant PetroChina Company Limited PTR reported 2019 earnings of RMB 45,677 million or RMB 0.25 per share compared with RMB 53,030 million or RMB 0.29 in the year-earlier period.

One of China’s big three oil giants, the other two being Sinopec SNP and CNOOC Limited CEO, PetroChina’s earnings were dragged down by lower commodity prices, weaker downstream results and massive gas import losses.

However, China’s dominant oil and gas producer’s total revenues during the year increased 6% from the 2018 level to RMB 2,516,810 million on higher oil and gas production.

PetroChina Company Limited Price, Consensus and EPS Surprise

PetroChina Company Limited Price, Consensus and EPS Surprise

PetroChina Company Limited price-consensus-eps-surprise-chart | PetroChina Company Limited Quote

Segment Performance

Upstream: PetroChina posted higher upstream output during the 12 months ended Dec 31, 2019. Crude oil volumes – accounting for more than 58% of the total – rose 2.1% from the year-ago period to 909.3 million barrels, while marketable natural gas output was up 8.3% to 3,908 billion cubic feet. As a result, PetroChina’s overall production of oil and natural gas increased 4.6% year over year to 1,560.8 million barrels of oil equivalent. Of the total, domestic output contributed 1,345.4 million barrels of oil equivalent (up 4.5% year over year), or 86.2%. 

The rise in production buoyed the upstream (or exploration & production) segment operating income to RMB 96,097 million, rising significantly from the year-ago profit of RMB 73,519 million. A tight leash on oil and gas lifting cost, that decreased 1.6% compared with the same period of last year, also helped results.

This was partly offset by drop in oil prices. Average realized crude price during 2019 was $60.96 per barrel, 10.7% lower than the year-ago period.

Downstream: The Beijing-based company’s ‘Refining & Chemicals’ business generated an operating income of RMB 13,764 million. This was down 69.2% from the year-earlier period earnings of RMB 44,701 million. The plunge in the downstream division was due to domestic refined products oversupply, narrowing profit margin and lower chemicals prices, which more than offset the impacts of strict cost control, optimized resource allocation and increased production of high-value products.

PetroChina’s refinery division processed 1,228.4 million barrels of crude oil last year, up 4.1% from 2018. The company produced 9,580 thousand tons of synthetic resin in the period (a rise of 4.5% year over year), besides manufacturing 5,863 thousand tons of ethylene (up 5.3%). It also produced 117,791 thousand tons of gasoline, diesel and kerosene during the period against 111,148 thousand tons a year earlier.

Natural Gas & Pipelines: A rise in sales volume of domestic natural gas, optimal utilization of its marketing channels and resources, together with stress on online transactions helped the Chinese behemoth’s segment earnings.

All these factors drove the segment’s income to RMB 26,108 million in the period under review, improving from the year-earlier profit of RMB 25,515 million.

However, PetroChina lost money to the tune of RMB 30,710 million on the sales of imported natural gas and liquefied natural gas (LNG) from Central Asia and Burma. The losses were wider compared with 2018 due to foreign exchange effects and higher procurement costs.

Marketing: In marketing operations, the state-owned group sold 187,712 thousand tons of gasoline, diesel and kerosene during the twelve-month period, up 5.1% year over year. The incremental volumes were enough to offset the impacts of domestic refined products supply glut and the pitfalls of a cutthroat competitive environment. All these helped PetroChina’s Marketing segment to narrow its loss substantially – from RMB 6,450 million recorded in the same period last year, to RMB 565 million.

Liquidity & Capital Expenditure

At the end of 2019, the group’s cash balance was RMB 86,409 million and long-term debt amounted to RMB 627,186. PetroChina’s debt-to-capital ratio was 30.3%. Meanwhile, cash flow from operating activities was RMB 359,610 million. Capital expenditure for the year reached RMB 296,776 million, up 15.9% from the year-ago level.

Coronavirus Impact

In a rare move, PetroChina withheld its capital expenditure and production targets for 2020 as the coronavirus pandemic leaves the worldwide energy industry struggling for survival following a collapse in demand amid a supply glut. The company cautioned investors about 'severe' profit hit from the contagion that originated in China and has now spread across the globe.

The fast-spreading novel coronavirus outbreak has triggered an unprecedented selloff in the commodity. In particular, with major cities under lock-down and travel restrictions in place, the consumption for crude is set to drop substantially. Global efforts to combat the pandemic’s impact and rev up economic activity have largely failed so far. The virus-inflicted demand slowdown has led to oil prices falling below $25. Pressure in the oil markets has been exacerbated by the no-holds-barred price war between Saudi Arabia and Russia.

Zacks Rank & Stock Picks

PetroChina currently carries a Zacks Rank #5 (Strong Sell). Meanwhile, investors interested in the energy space could look at a better option like Murphy USA MUSA, carrying a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The Zacks Consensus Estimate for Murphy USA’s 2020 earnings indicates year-over-year improvement of 7.7%.

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