PetroChina says profit may triple amid cost cuts, higher oil

By Bloomberg News on 1/30/2018

HONG KONG and SHANGHAI (Bloomberg) -- PetroChina Co., the country’s biggest oil and gas producer, forecast that full-year profit rebounded off a record low and may have tripled amid cost cutting and higher energy prices.

Net income for 2017 may have jumped by as much as 16 billion yuan ($2.5 billion), the state-run oil giant said in a filing to the Hong Kong stock exchange, citing Chinese accounting standards. That implies net income of as much as 23.9 billion yuan. Profit at the Beijing-based company will snap three years of declines after posting its worst-ever profit in 2016 as falling crude prices crushed profitability.

PetroChina credited the jump in net profit to rising prices of crude oil, fuels and natural gas, as well as optimizing production and operations, cost cutting and increased efficiency. It also highlighted that its 2016 profit included a 24.5 billion yuan one-time gain on the sale of a stake in its Trans-Asia Gas Pipeline Co., which links Central Asian countries to China’s western border.

PetroChina plays a key role in President Xi Jinping’s drive to use more natural gas. While it’s the country’s biggest producer, it’s also the largest importer, a trade that weighed on earnings in the third quarter and may put a brake on further gains as it sells the overseas gas at a loss.

“While this marks an improvement year on year, returns remain significantly below peers,” Neil Beveridge, a senior analyst at Sanford C. Bernstein in Hong Kong, said in an email. “We continue to worry on the impact of gas losses on PetroChina’s ability to grow earnings.”

Oil Upside

Global benchmark crude Brent last year averaged 21% higher as output cuts by OPEC and its allies drained a global glut. PetroChina’s profit for 2017 in International Accounting Standards may jump to 27.4 billion yuan, according to the mean estimate of 18 analysts surveyed by Bloomberg.

PetroChina is the top pick among Chinese oil companies because of a further increase in crude prices forecast this year and an expectation that it will spin off pipelines into a national company,  Citigroup Inc.’s Hong Kong-based analyst Nelson Wang wrote in a Jan. 29 note. All-in costs of around $50/bbl leave the company room to benefit from higher crude prices, he wrote

The company’s shares have gained 15% this year, compared with a 9% rise in Hong Kong’s Hang Seng Index. The company shares closed Tuesday 3.6% lower at HK$6.25.

“Net income will continue to increase this year amid still robust gas use expansion and strong oil prices,”  Tian Miao, a Beijing-based analyst at Everbright Sun Hung Kai Co., said by phone. “Even though growth won’t be as drastic as in 2017."

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