PetroChina flags a US$1.5 billion writedown from selling assets, even as its 2018 net income doubles

PetroChina warned of a US$1.5 billion write-down from the disposal of some assets as it estimated full-year net income more than doubled last year. Shares fell.

China’s biggest oil and gas producer lost as much as 2.3 per cent in Hong Kong Tuesday. Huatai Financial Holdings (Hong Kong) cut its rating on the stock to hold and slashed its price target by 40 per cent, cautioning that PetroChina faced a weak fourth quarter due to write-offs and large inventory losses.

The company said in a filing Monday that net income could have jumped as much as 132 per cent in 2018, citing Chinese accounting standards. That would take it to 52.8 billion yuan (US$7.8 billion) for the year, according to Bloomberg calculations, compared with a 61 billion yuan average of 13 estimates that are based on international standards before the announcement.

That’s in spite of a non-recurring loss of as much as 10 billion yuan, on which the company did not elaborate beyond saying it disposed of certain oil and gas, as well as fixed, assets that met the conditions to be scrapped under accounting standards. If it weren’t for the writedowns, earnings could have risen as much as 149 per cent, PetroChina said.

In addition to a weak fourth quarter due to lower oil prices, Huatai sees PetroChina getting a smaller-than-expected stake in the upcoming national pipeline company and its free cash flow under pressure from an exploration focus on high-cost fields in Xinjiang.

Citigroup said lower oil prices in the final three months of 2018 have fully offset PetroChina’s benefits from natural gas winter price hikes. As gas prices start to decline from March and crude trades at about US$60 a barrel, the bank sees limited catalysts to re-rate the stock, maintaining a neutral rating and a target of HK$5.