PetroChina First-Half Profit Declines 6% on Refining Losses

PetroChina Co. (857), China’s biggest oil and natural gas producer, posted a 6 percent decline in first-half profit after losses from selling fuels at state-controlled prices eroded gains from higher production.

Net income fell to 62 billion yuan ($9.8 billion), or 0.34 yuan a share, from 66 billion yuan, or 0.36 yuan, a year earlier, the Beijing-based energy explorer and oil refiner said today in a Hong Kong stock exchange filing. The median estimate of six analysts compiled by Bloomberg was a profit of 63.77 billion yuan.

China’s fuel price controls, aimed at curbing inflation, and a delay in natural gas pricing reforms continue to result in losses for state-owned PetroChina, which seeks to rely more on oil production. The energy producer plans to invest $60 billion to buy overseas assets by the end of the decade to help diversify from domestic refining.

“Their headwinds are well known to the market, so there shouldn’t be much surprise,” said Gordon Kwan, Hong Kong-based head of energy research at Mirae Asset Securities Ltd. “Domestic fuel price increases following the oil price rebound and stable economic growth in China should translate to better performance in the second half.”

PetroChina has gained 1.4 percent in Hong Kong trading in the past 12 months, compared with a 1.3 percent increase in the benchmark Hang Seng index. The stock rose 0.8 percent to HK$9.71 today, before the earnings announcement.

‘Sluggish’ Economy

PetroChina produced 452.4 million barrels of crude in the first half, up 1.5 percent from a year earlier, while its average selling price increased 6.3 percent to $107.98 a barrel. Oil and gas output rose 3.8 percent to the equivalent of 667.9 million barrels.

The global economic recovery will remain “sluggish and tortuous” in the second half and the worsening euro debt crisis will continue to spread, PetroChina said in the statement. The company said it expects the trend of slowing growth in the Chinese economy to remain.

The company incurred a loss of 28.9 billion yuan from refining and chemicals because of factors including a slowdown in the growth of the Chinese economy and the government’s control over domestic fuel prices, according to the statement. The loss from refining was 23.2 billion yuan.

China, the world’s second-biggest oil consumer, cut fuel rates three times between May and July, helping truckers and motorists with the lowest pump prices since December 2010, while threatening profit margins at refiners. The nation increased gasoline and diesel prices this month for the first time since March after global crude costs climbed.

Fuel Prices

Gasoline and diesel prices are set by the National Development and Reform Commission under a system that tracks the 22-day moving average of a basket of crudes, including Brent, Dubai and Indonesia’s Cinta. China plans to revise its pricing system so domestic rates can better track crude. The new system may shorten the pricing cycle to 10 days, China Petrochemical Corp. said March 28.

Brent crude, the benchmark for more than half the world’s oil, dropped 20 percent in the second quarter, the biggest decline since the final quarter of 2008. Brent settled at $97.80 a barrel on June 29 on the London-based ICE Futures Europe exchange.

PetroChina wants half its oil and gas output to come from overseas by the end of the decade, Chairman Jiang Jiemin said in March. Production abroad rose 0.9 percent to the equivalent of 62.5 barrels, accounting for 9.4 percent of the company’s output in the first half.

In addition to acquiring reserves and building a global oil-trading business, PetroChina is seeking to forge alliances with its counterparts in oil-rich nations to invest in ventures in China, CFO Zhou Mingchun said in an interview in May.

PetroChina is looking at refining and storage assets in the Americas and the Caribbean and expects a breakthrough in setting up trading operations in the region this year, Chairman Jiang said after the company’s annual general meeting in Beijing on May 23, without elaborating.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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