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Christine Chan

PetroChina, China's biggest oil producer, is today expected to report net earnings of more than 50 billion yuan (about HK$46.85 billion), the second-biggest profit for a Hong Kong-listed company after HSBC Holdings.

Last year, Hong Kong's biggest banking group earned HK$55 billion.

The consensus forecast from analysts polled by Multex Global Estimates put PetroChina's earnings at 52.02 billion yuan, almost double the 27 billion yuan it made in 1999. The company listed on the Hong Kong stock exchange in April last year.

Analysts attributed the expected profit increase to soaring oil prices, significant cost reductions and downsizing of low-efficiency refining operations.

As the world's fourth-largest publicly traded oil company, PetroChina produced 765.4 million barrels of crude oil and 503.9 billion cubic feet of gas (available for sales). At the same time it refined 536.6 million barrels of crude oil, according to its Web site.

The figures represent moderate increases over 1999.

PetroChina dominates in its key business areas, producing about 60 per cent of China's oil and natural gas, owning 84 per cent of the natural gas pipeline network, and being part of a duopoly in the refining and wholesaling of oil and chemical products.

Soaring oil prices - which hit near 10-year highs - was the driver of PetroChina's profit growth.

Every US$1 movement in oil prices translates into a 12 per cent change in the company's net profit, according to the head of energy and chemicals research at Goldman Sachs (Asia) Paul Bernard.

PetroChina is forecast to have sold crude oil at an average of US$26 a barrel - up 54.1 per cent from 1999's average of US$16.87 a barrel last year.

Indications are that crude oil prices will ease this year, to US$20.90 on the low end, according to Goldman Sachs.

On Friday, benchmark Brent crude for June was quoted at US$26.38 a barrel.

Mr Bernard said PetroChina's significant cost-cutting efforts contributing to its improved earnings performance.

PetroChina had achieved more than a third of its expected nine billion yuan in savings over three years, he said.

Company officials indicated that its lifting cost - the benchmark cost measure of oil production - for all of last year would fall to US$4.68 a barrel - an improvement from US$4.75 in 1999 and US$4.88 during the first half of last year.

Officials hoped to further lower the lifting cost to US$4.50 next year and to US$4 by 2005, moving closer to the ranks of world counterparts such as BP Amoco, whose lifting cost is about US$3.50, Mr Bernard said.

Last year, PetroChina closed down six inefficient refining facilities with a total average capacity of 113,400 barrels a day, or about 6 per cent of the company's refining capacity.

Analysts expect the company to cut 15 per cent of its refining output capacity by 2002.

The refining and marketing division proved a drag on PetroChina's profit last year. The division lost about 5.5 billion yuan, Mr Bernard said. This year, it is forecast to earn about 2.4 billion yuan as a result of the closures and mergers.

In the first quarter PetroChina produced 213.3 million barrels of oil equivalent, a 1.1 per cent decrease in the first three months last year, according to unaudited figures on the Web site.



PetroChina set to report $46b profit