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Hong Kong company reporting season

PetroChina, CNOOC report dismal but slightly better than expected interim results on slump in oil prices

PUBLISHED : Wednesday, 24 August, 2016, 5:52pm
UPDATED : Wednesday, 24 August, 2016, 10:51pm

PetroChina, the nation’s largest oil and gas producer, unveiled a better than expected 98 per cent decline in interim profit, after it was pummelled by the sharp decline in oil prices.

Net profit amounted to 531 million yuan for the first six months, down from 25.4 billion yuan in the same period last year, and was the lowest since the company went public in 2000.

But it was higher than the 252 million yuan average estimate of analysts at BNP Paribas, Nomura and Sanford Bernstein.

An interim dividend of 2.13 fen per share was declared, inclusive of 2 fen of special dividend, compared to 6.25 fen last year.

“In the second half of 2016, the recovery of the global economy will remain weak ... the global oil price is likely to keep fluctuating at a low level,” chairman Wang Yilin said in a statement to Hong Kong’s exchange on Wednesday after the market closed. “The group will ... exercise strict control over investments and costs, and endeavour to control and reduce losses while maintaining sufficient resources.”

The firm booked a 2.42 billion yuan operating loss on oil and gas production, compared to a profit of 32.9 billion yuan in the year-earlier period.

By squeezing suppliers to lower their costs, it managed to slash the first-half cash cost to pump each barrel of oil – excluding asset depreciation and amortisation – by 10 per cent year on year to US$11.32 a barrel.

PetroChina’s first-half average crude oil selling price sank 36.5 per cent year on year to US$52.1 a barrel.

First-half operating profit from oil refining and chemical production jumped to 27.47 billion yuan from 4.66 billion yuan, thanks to a favourable domestic fuel pricing policy and lower feedstock costs for chemical production.

Fuel and chemicals marketing saw operating profit increase 65.6 per cent year on year to 4.61 billion despite fierce competition and slowing demand growth, thanks to cost cutting and higher non-fuel product sales at fuel stations.

In the second half of 2016, the recovery of the global economy will remain weak ... the global oil price is likely to keep fluctuating at a low level
Wang Yilin, PetroChina chairman

Operating profit from natural gas transmission and distribution fell 23.1 per cent year on year to 14.87 billion yuan due to a sharp fall in gas prices, which was partially offset by a narrowing of loss from the trading of imported gas to 8 billion yuan from 10.62 billion yuan.

However, the firm booked a 24.5 billion yuan accounting gain on the sale of its Central Asia pipeline assets, which helped the company offset most of the sharp fall in oil and gas production profit.

The company has realised 50.9 billion yuan on capital expenditure in the year’s first half, down 17.5 per cent year on year, and amounted to just 26.5 per cent of its budget of 192 billion yuan set in March for the full year. First-half spending was less than the 60 billion yuan estimated by Gordon Kwan, head of regional oil and gas research at Nomura.

“We believe PetroChina’s top priority is to streamline domestic cost-cutting initiatives further to ensure free cash flow generation,” Kwan wrote in a note on August 11. “We forecast further scope for PetroChina to reduce capital expenditure, with the company becoming more selective on which project to fund.”

Separately, CNOOC, China’s dominant offshore oil and gas producer that has no refining or chemical operations, posted a net loss of 7.74 billion yuan, the first loss since it went public in 2001.

It was slightly less than its loss warning of around 8 billion yuan issued late last month, and compares with a profit of 14.73 billion yuan in the year-earlier period.

The loss was due mainly to the booking of 10.36 billion yuan of assets impairments, mainly on oil sands assets in Canada, where its Long Lake project was hit by a deadly blast and an oil spill incident last year.

Asked why the firm had chosen to make the huge write-down on the assets mid this year instead of at the end of last year when oil prices were even lower, chairman Yang Hua told reporters the decision was based on management’s assessment of the outlook of oil prices, production potential and cost position of the assets “at that point in time”.

“Oil sands is a good thing even though its production cost is relatively high … to have a holistic appreciation of its value, we need to look at it on a long term horizon of 30, 40, 50 years,” he said.

First-half revenue fell 25.4 per cent to 66.83 billion yuan, on the back of a 34.5 per cent plunge in average oil prices to US$37.7 a barrel while gas selling prices slid 16.2 per cent.

Oil output rose 1 per cent to 202.4 million barrels, while gas output fell 2 per cent to 227.6 billion cubic feet.

Although the first-half total output was up 0.6 per cent year-on-year, management has not changed the full-year oil and gas output target of 470 million to 485 million barrels of oil equivalent unveiled early this year, representing a 2.2 to 5.2 per cent fall from output achieved last year.

Total oil production cost fell 15.5 per cent year on year to US$34.86 a barrel.

An interim dividend of 12 HK cents per share was declared, down from 25 cents last year.

PetroChina shares closed 0.19 per cent lower at HK$5.27 on Wednesday, while CNOOC ended the day 0.2 per cent lower at HK$9.61. PetroChina has risen 3.7 per cent year to date, while CNOOC has surged 19.1 per cent on the back of the rebound in oil prices, outperforming the 4.1 per cent gain of the Hang Seng Index.