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PetroChina (PTR) Q3 Earnings Miss Despite Upstream Strength

Zacks Equity Research

Chinese energy giant PetroChina Company Limited PTR announced third-quarter 2019 earnings per ADR of 68 cents that missed the Zacks Consensus Estimate of $1.45 and were below the year-ago profit of $1.69.

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, the country’s dominant oil and gas producer’s total revenue for the quarter rose 1.8% from the year-ago period to RMB 618,143 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 nine months ended Sep 30, 2019. Crude oil volumes – accounting for 58.6% of the total – rose 2.9% from the year-ago period to 682.7 million barrels, while marketable natural gas output was up by 8.7% to 2,892.8 billion cubic feet. As a result, PetroChina’s overall production of oil and natural gas increased 5.2% year over year to 1,165 million barrels of oil equivalent. Of the total, domestic output contributed 1,005 million barrels of oil equivalent (up 5% year over year), or 86.3%.   

The rise in production buoyed the upstream (or exploration & production) segment operating income to RMB 76,935 million, rising significantly from the year-ago profit of RMB 57,884 million. A tight leash on oil and gas lifting cost, that decreased 1.7% compared with the same period of last year, also helped results.

This was partly offset by drop in commodity prices. Average realized crude oil price during the first three quarters of 2019 was $61.49 per barrel, 9.5% lower than the year-ago period. Meanwhile, average realized natural gas prices – at $5.49 per thousand cubic feet – decreased 4%.

Downstream: The Beijing-based company’s ‘Refining & Chemicals’ business generated an operating income of RMB 7,133 million. This was down 81.7% from the year-earlier period earnings of RMB 38,906 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 905.9 million barrels of crude oil during the nine-month period, up 4.3% from 2018. The company produced 7,018 thousand tons of synthetic resin in the period (a rise of 5.5% year over year), besides manufacturing 4,290 thousand tons of ethylene (up 7%). It also produced 86,583 thousand tons of gasoline, diesel and kerosene during the period against 81,516 thousand tons a year earlier.

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

All these factors drove the segment’s income to RMB 21,950 million in the period under review, improving from the year-earlier profit of RMB 19,719 million.

However, PetroChina lost money to the tune of RMB 21,764 million on the sales of imported natural gas and liquefied natural gas (LNG) from Central Asia and Burma. The losses were wider compared with the first three quarters of 2018 due to foreign exchange effects and higher procurement costs.

Marketing: In marketing operations, the state-owned group sold 138,680 thousand tons of gasoline, diesel and kerosene during the nine-month period, edging up 0.8% year over year. However, the slightly incremental volumes were nowhere near offsetting the impacts of domestic refined products supply glut, lower pricing and the pitfalls of a cutthroat competitive environment. All these dragged down PetroChina’s Marketing segment profit to just RMB 422 million from RMB 6,424 million recorded in the same period last year.

Liquidity & Capital Expenditure

At of Sep 30, 2019, the group’s cash balance was RMB 111,569 million, while cash flow from operating activities was RMB 239,396 million. Capital expenditure for the nine months reached RMB 174,364 million, up 17.7% from the year-ago level.

Zacks Rank & Stock Picks

PetroChina currently carries a Zacks Rank #3 (Hold). Meanwhile, investors interested in the energy space could look at a better option like Phillips 66 PSX that sports a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Phillips 66 has seen the Zacks Consensus Estimate for 2019 rise 14.3% over 30 days.

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