PetroChina Income Drops to '99 Low on $3.8 Billion Writedown

  • Income falls 67% to lowest since company publicly listed
  • Company lowers capital spending 5% after a 31% cut in 2015

PetroChina Co. profit tumbled to the lowest since 1999 as the company reported a 25 billion yuan ($3.8 billion) writedown amid the crash in energy prices.

Net income at China’s biggest oil and gas producer dropped 67 percent to 35.5 billion yuan from 107 billion yuan, according to a statement sent to the Hong Kong stock exchange. Sales fell 24 percent to 1.73 trillion yuan. The company warned in January that 2015 profit may fall 60 percent to 70 percent.

Brent, the global benchmark, dropped to an average of about $54 a barrel last year, from roughly $99 the year before, prompting global oil energy companies to write down assets, slash earnings and cut capital expenditure plans. Despite the pain, PetroChina and its state-owned parent China National Petroleum Corp. won’t resort to laying off frontline oil and gas workers as a way to cut costs, Chairman Wang Yilin said this month.

“The worst is over, given the recent oil price rebound and cost cutting initiatives implemented,” said Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Hong. “The writedowns are due to the unprecedented fast oil price collapse hurting asset value. Rebounding oil prices in the next few years will raise asset values.”

The company’s writedowns came in its upstream sector, which includes oil and gas assets, President Wang Dongjin said at a briefing in Hong Kong after the results were announced, without providing further details.

PetroChina will shut down oil and gas fields that have “no hope” of making a profit under current oil prices, Wang said. Redundant workers will either be transferred to other positions or offered early retirement, he said.

State-Run Reform

Oil has climbed back from a 12-year low this year on speculation that stronger demand and falling U.S. output will ease a global surplus. The Organization of Petroleum Exporting Countries and other producers including Russia plan to meet in Doha next month to discuss limiting output to reduce a global oversupply.

PetroChina, which listed publicly in 2000, China Petroleum & Chemical Corp. and Cnooc Ltd. all posted profit or revenue declines for the first nine months of 2015. PetroChina and CNPC sold pipeline assets in November to raise cash to meet their annual profit target. Capital spending this year will be 5 percent lower at 192 billion yuan, following a 31 percent cut last year.

PetroChina sees total production falling 2.7 percent this year to 1.45 billion barrels of oil equivalent as a drop in crude production overwhelms higher gas output. The 3 percent gain in 2015 was driven by growth in its overseas output, according to the statement.

The company’s shares rose 0.9 percent to HK$5.37 before the earnings announcement, compared with a 0.3 percent loss in the city’s benchmark Hang Seng Index. They are down 35 percent in the past year.

Parent company CNPC will be among the first state-owned companies to undergo government-guided reforms, transforming into a strategic holding company that won’t manage day-to-day operations of its subsidiaries, according to people with knowledge of the situation. As part of the overhaul, China’s government is looking to spin off oil and gas pipelines from its energy companies into independent businesses.

Wang, also chairman of parent CNPC, said Wednesday that he hadn’t been officially notified of the reform, even as he welcomed the moves, saying “only reform can solve CNPC’s deep-rooted issues.”

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