PetroChina Expects 2015 Profit to Fall as Much as 70% on Oil Slump

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  • PetroChina forecasts 2015 net profit declining 60% to 70%
  • Company cites crude's drop, lower domestic natural gas prices

Is Oil Low Because of Slow Growth or Oversupply?

PetroChina Co., the country’s biggest oil and gas producer, expects its 2015 profit to have fallen 60 percent to 70 percent from a year earlier because of the slump in energy prices.

The company sees the oil market continuing to be weak this year and is seeking to cut costs, it said in a statement to the Hong Kong stock exchange on Friday. PetroChina cited crude’s fall and lower domestic natural gas prices for the drop in earnings, estimates for which were compiled according to China accounting standards. The company reported net income of 107.2 billion yuan ($16.3 billion) for 2014.

“The focus now is really on what PetroChina can do to respond to lower prices in terms of cost cuts and capital expenditure control in 2016,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “The collapse in oil prices, the lower gas prices and weak downstream performance all really weigh on the company.”

Brent crude, the benchmark for more than half the world’s oil, plunged 35 percent last year, punishing producers and forcing drillers from the U.S. to Asia to slash spending and cut staff. Prices have crashed as the Organization of Petroleum Exporting Countries sustains output amid a global glut to drive out higher-cost suppliers. Royal Dutch Shell Plc, Europe’s biggest oil company, said last week that it expects fourth-quarter profit to drop at least 42 percent

‘Continue to Slump’

PetroChina closed 4.2 percent higher in Hong Hong at HK$4.75 before the announcement. Shares are down 6.5 percent so far this year, compared with a 10 percent drop in the city’s benchmark Hang Seng Index.

PetroChina in October posted an 81 percent drop in third-quarter profits, using international accounting standards. Net income in the first half of last year, by the same accounting, fell 63 percent. The government of President Xi Jinping has suspended retail fuel price cuts as long as oil trades below $40, in part to shield domestic producers from the price collapse. Brent was up 0.6 percent at $34.10 a barrel as of 10:18 a.m. London time.

“As the price of international crude oil has declined significantly and the price of domestic natural gas has been driven down, a relatively large reduction in the company’s profit occurred,” PetroChina said in its release. “The market of international oil and gas is expected to continue to slump.”

China in November lowered natural gas prices for business and industrial users as the world’s second-largest economy seeks to boost use of the fuel in its energy mix and reduce pollution. The lower prices will save buyers an estimated 43 billion yuan on about 60 billion cubic meters of natural gas, the National Development and Reform Commission, the country’s economic planner, said at the time.

Fellow state-run energy company China Petroleum & Chemical Corp. said Wednesday that oil and gas output in 2015 fell for the first time in 16 years as a slump in domestic crude production outweighed record volumes of natural gas. Cnooc Ltd., the country’s biggest offshore explorer, said last week that output will fall this year, the first time in more than a decade, as it further cuts spending.