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PetroChina's Tripling Profit on Higher Oil Misses Expectations

Updated on
  • Chinese explorer forecasts 2017 net income rising 165% to 203%
  • Profit missing expections on possible writedowns, analyst say

PetroChina Co. forecast for full-year profit possibly tripling came in below what analysts had expected, raising speculation that the company wrote down assets in the fourth quarter.

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 Tuesday, citing Chinese accounting standards. That implies net income of as much as 23.9 billion yuan, compared with an expected 27.4 billion yuan mean estimate of 18 analysts surveyed by Bloomberg before the company’s announcement, using international accounting standards.

PetroChina Profit

Net income may triple on rising energy prices and cost cutting

Source: Bloomberg, company reports

Note: 2017 net income implied based on company estimates

The miss is likely due to impairment charges in the fourth quarter, according to analysts at Citigroup Inc., Nomura Holdings Inc. and Huatai Financial Holdings (Hong Kong) Ltd. The company may have taken 10 billion yuan in writedowns across exploration and production, refining and chemicals, Nelson Wang at Citigroup wrote in a research note. Nomura’s Lin Chen said widening losses on liquefied natural gas exports might have weighed on earnings during the last three months of the year.

PetroChina fell 2.9 percent to HK$6.07 as of 9:34 a.m. in Hong Kong, compared with a 0.3 percent slide in the city’s benchmark Hang Seng Index.

Profit at the Beijing-based company will snap three years of declines after posting its worst-ever performance in 2016. PetroChina credited the jump in last year’s net income to rising prices of crude oil, fuels and natural gas, as well as optimizing production and operations, cost cutting and increased efficiency. Global benchmark crude Brent last year averaged 21 percent higher as output cuts by OPEC and its allies drained a global glut.

Gas Losses

The company also highlighted in its release that 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 & Co. 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

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’s Wang wrote in a Jan. 29 note. All-in costs of around $50 a barrel leave the company room to benefit from higher crude prices, he wrote.

“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.”

— With assistance by Aibing Guo, Jing Yang, Dan Murtaugh, Jing Jin, and Ryan Lovdahl

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