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We are upgrading PetroChina Company Limited (NYSE:PTR) ADRs to Outperform from Neutral, reflecting the company’s leverage to the fast growing Chinese market and the turnaround in commodity prices. Being one of the two Chinese integrated oil companies, PetroChina is well-positioned to capitalize on these favorable trends.

We also like PetroChina’s recent foray in the oil sands business through its $1.8 billion acquisition of majority stakes in two Canadian projects. We see this transaction as part of the company’s long-term strategic plan to explore one of the world's largest untapped oil regions and supplement its conventional reserves. Moreover, PetroChina’s easy access to credit and ability to handle sour heavy crude oil makes Canadian oil sands more financially viable.

Attractive growth prospects in the downstream and natural gas sectors are other positives in the PetroChina story. Despite some near- to medium-term concerns that include rising costs, downstream-centric assets portfolio, and special levies on domestic crude oil sales, the company’s long-term outlook looks compelling.

PetroChina is the largest integrated oil company in China. The company’s activities include: the exploration, development, production and sale of crude oil and natural gas, the refining, transportation, storage and marketing of petroleum products, the manufacture and sale of chemical products, and the transmission of natural gas, crude oil and refined products.

PetroChina was established in November 1999 as a part of a restructuring of China National Petroleum Corporation (CNPC), a state-owned entity, which currently holds a majority stake of 86.71% in PetroChina. The company operates in four segments: Refining & Marketing, Exploration & Production, Chemicals, and Natural Gas & Pipelines, which accounted for 53%, 37%, 6%, and 4%, respectively, of its fiscal 2008 operating revenue.

Source: PetroChina's Attractive Growth Prospects