PetroChina Turns Overseas as Home Market’s Appeal Wanes

PetroChina Co. (857) will lift overseas output to 60 percent of its total in the next eight years as the nation’s biggest energy producer copes with mounting import costs, price controls and refining losses at home.

“Over the next three years, we’ll expand our presence in overseas markets,” Vice President Sun Longde said at a media conference yesterday in Hong Kong, after announcing lower-than- expected full-year earnings. “Our target by the end of 2015 is to have 50 percent of our output come from overseas projects and by the end of 2020, 60 percent.” Overseas production accounts for 10 percent now, the company said.

State-owned PetroChina, which plans to invest at least $60 billion this decade in global energy assets, said its overseas focus will stretch from the Middle East and Central Asia to the Americas and Asia-Pacific. The company has spent about $5 billion with parent China National Petroleum Corp. this year to add oil and gas fields in Australia and Africa as the world’s second-biggest economy capped fuel prices to contain inflation, resulting in losses for its major refiners.

“Over time, consistent production growth will help offset most of PetroChina’s losses from imported gas and refining, even if the Chinese government only gradually reforms natural gas pricing,” Laban Yu, a Hong Kong-based analyst at Jefferies Group Inc., said yesterday by phone. “In the immediate future, PetroChina’s earnings will still hinge on whether the government allows the company to raise prices on natural gas imported from Central Asia.”

Gas production will rise to as much as 120 billion cubic meters by 2015 from 72 billion cubic meters now, Sun said.

Profit Falls

PetroChina fell 0.6 percent to HK$10.38 at the close in Hong Kong yesterday, before the earnings announcement. The shares have dropped 7 percent in the past year, compared with a 6.6 percent gain in the benchmark Hang Seng Index.

Net income dropped 13 percent to 115.3 billion yuan ($18.6 billion) last year, the company said in a statement to the Hong Kong stock exchange yesterday. That compared with the 119.8 billion yuan mean of 27 analyst estimates compiled by Bloomberg. Revenue rose 9.6 percent to 2.2 trillion yuan.

China increased fuel prices for first time since September on Feb. 25, raising gasoline by 300 yuan a metric ton and diesel by 290 yuan a ton. 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, comprising Brent, Dubai and Indonesia’s Cinta. The commission plans to shorten the fuel price adjustment window, former NDRC Chairman Zhang Ping said on March 6, without providing details.

Refining Loss

PetroChina’s refining business posted an operating loss of 43.5 billion yuan in 2012, compared with a loss of 60.1 billion in 2011, according to the statement. Operating expenses in the refining and chemical segment rose 1.9 percent.

The company refined 1 billion barrels of crude in 2012, 2.8 percent more than a year earlier. Output rose 3.4 percent to 916.5 million barrels, while gas production increased 6.8 percent to 2.6 trillion cubic feet, according to the statement.

Fourth-quarter profit fell 4 percent to 28.4 billion yuan, according figures derived from full-year earnings. That compares with the mean estimate of 28.2 billion yuan in a Bloomberg survey of seven analysts.

PetroChina agreed to pay BHP Billiton Ltd. (BHP) $1.63 billion in December for a stake in the proposed Browse liquefied natural gas venture in Western Australia. Its state-owned parent CNPC announced it will spend $4.2 billion to buy a stake in Eni SpA (ENI)’s African natural gas assets in Mozambique on March 14, Asia’s biggest acquisition this year. Jiang Jiemin, former chairman of both companies, said on March 5 that the company “is now studying investments in the U.S.”

Unconventional Resources

PetroChina plans to spend 239.6 billion yuan on exploration and production this year, an increase of 5.5 percent, and “more efforts will be devoted” to unconventional resources exploration such as shale gas and coal-bed methane, it said in the statement. Output of unconventional gas was 18.2 billion cubic meters last year, Sun said, adding shale gas is still in a study and experimental phase.

PetroChina expects to spend 32.4 billion yuan on refinery construction and upgrades as record pollution in Beijing has been partially blamed on fuel standards. Refining capacity will increase to 200 million tons by 2015, Sun said.

Spending this year will focus on Guangdong, Yunnan and Sichuan provinces as well as “construction of quality enhancement projects for gasoline and diesel products,” according to the statement. The company is working to improve fuel grades to clean up Beijing’s toxic air, Sun said.

To contact the reporters on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net; Benjamin Haas in Hong Kong at bhaas7@bloomberg.net

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

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