Buy-recommended PetroChina (PTR) ought to see less downward influence on profits in a lower price environment just as it saw less upward influence on profits in a higher price environment. A crude oil excise tax that siphoned off most of the benefit of high price should be disappearing at low price. Fixed ceilings on petroleum product prices should now allow a positive margin for refining as crude oil cost is lower. Gradual, or accelerated, increases in natural gas price can continue along with rapid volume growth as environmental demand for the clean fuel exceeds supply.
The cushioning effect of managed pricing should start to show up in complete financial results for the second half of 2008, due by the end of March 2009. Despite dampened influence of energy price, PTR stock price reached a high McDep Ratio of 3.40 when it started trading in Shanghai in November 2007. Now the McDep Ratio in Shanghai is 1.02, still about twice the McDep Ratio for stock trading in New York.
Currently estimated net present value (NPV) of $150 a share is about double stock price for the low-debt company. NPV is supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). Finally, PTR is one of two buy recommendations among five stocks in the Brazil/China/Russia, or emerging market, segment of our oil and gas coverage.
Originally published on January 22, 2009.