Hong Kong company reporting season

PetroChina reports 2016 net profit tumbles 78 pc, says it’s in talks with Saudi Aramco

PUBLISHED : Thursday, 30 March, 2017, 8:29pm
UPDATED : Friday, 31 March, 2017, 11:23am

Petro China, the nation’s largest oil and gas producer, says it is holding wide-ranging talks with Saudi Arabia’s oil giant Saudi Aramco that include possible participation in its upcoming initial public offering, expected to be the world’s largest.

Petro China’s vice chairman Wang Dongjin said he was recently informed of Aramco’s plan to go public. Wang made the comments in a post results press briefing after the company posted a 78 per cent profit decline for 2016 that was in line with analysts’ expectations.

“PetroChina will study the opportunity according to market conditions and national interests,” Wang told reporters on Thursday when asked if PetroChina is interested in acquiring shares in the energy giant that manages the world’s largest proven conventional crude oil reserves.

Wang said the talks also covered Aramco’s interest in investing in an oil refining and petrochemical project being built by PetroChina in Yunnan province that is expected to come on stream in June. The talks also included the potential deployment of PetroChina’s technology to enhance output of Aramco’s oil projects in Saudi Arabia.

Officials at Sinopec, China’s second-largest state-backed oil firm, said on Monday that talks involving potential cooperation have been underway with Aramco.

PetroChina said 2016 net profit amounted to 7.9 billion yuan (US$1.15 billion), down from 35.5 billion yuan in 2015, in line with its warning two months ago of a 70 to 80 per cent fall.

The profit included a 24.5 billion yuan gain from the sale last year of a 50 per cent stake in a firm that owns gas pipelines linking northwest China to Central Asia. A pipeline assets restructuring gain amounting to 21.6 billion yuan was booked in 2015.

Revenue tumbled 6.3 per cent to 1.6 trillion yuan last year on the back of a 11.9 per cent drop in the average oil selling price to around US$38 a barrel, a 5.3 per cent fall in oil output, and a 20 per cent fall in the natural gas selling price.

Operating profit from oil and gas production plummeted 91 per cent on year to 3.1 billion yuan, offset mostly by a 700 per cent jump in oil refining and chemical production profit to 39.1 billion yuan.

Fuel marketing booked a profit of 11 billion yuan, compared to a 500 million yuan loss in 2015.

The operating cost - excluding asset depreciation and other fixed costs - to produce each barrel of oil fell 10 per cent to US$11.7.

Wang expects this year’s international oil price to average somewhere between US$50 and US$58 a barrel. The Brent benchmark averaged US$44 last year.

He said the higher oil price means the firm’s operating profit in the first quarter of 2017 could exceed 11 billion yuan, compared to a loss of 9 billion yuan in last year’s first quarter.

Natural gas marketing and pipeline distribution profit fell 65 per cent to 17.9 billion yuan last year.

Asked if PetroChina will spin off its pipeline assets into a separately listed unit, Wang said it is restructuring assets worth some 500 billion yuan, and it will strive to “fully reflect” their market value after Beijing put a return cap on the nation’s gas pipelines at 8 per cent.

The company said crude oil output is likely to decline 4.5 per cent to 879 million barrels this year, after a 5.3 per cent fall last year as high-cost fields were shut.

It is aiming for a 1 per cent increase in saleable natural gas output this year, down from 4.6 per cent growth last year.

The company plans to lift spending on oil and gas drilling projects by 10 per cent to 143.6 billion yuan this year, while that for expanding and upgrading oil refining and petrochemical facilities will be raised by 5 per cent to 13.6 billion yuan.

Last year’s projects and facilities spending on all business segments amounted to 172 billion yuan, less than the 192 billion yuan budgeted a year earlier, and less than half of the 352 billion yuan spent in 2012.

A final dividend of 3.8 fen and a special dividend of 2 fen per share was proposed, bringing the full-year payout to 5.9 fen, compared to 8.7 fen in 2015.

PetroChina’s total dividend for the year amounts to 138 per cent of its net profit booked last year, compared to a long-standing payout policy of 45 per cent since the oil giant went public in 2000.

Sinopec’s payout last year was 65 per cent, up from 56 per cent in 2015, while that of offshore oil major CNOOC surged to 22 times its profit last year from 92 per cent in 2015.

Chinese oil majors had previously lagged behind their western peers in terms of dividend yields, which saw their shares trade on a widening discounts in recent years, Sanford Bernstein senior analyst Neil Beveridge said in a recent report.

“After years of overinvestment, returns for Chinese oil majors - which used be higher than western peers - are now on the low side,” he said. “There is greater uncertainty in future upstream growth, given the maturity of the oil resource base in China relative to shale [oil and gas output] growth in the US.”

Petrochina shares edged up 0.2 per cent to HK$5.76 ahead of the after-hours results announcement.