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Chinese energy giant PetroChina Co. Ltd. (PTR) announced its third quarter 2010 earnings of RMB 34.7 billion or RMB 0.19 per diluted share, compared with RMB 30.8 billion or RMB 0.17 per diluted share in the year-earlier period. Earnings per ADR came in at $2.84 (exchange rate: US$1.00 = RMB 6.7, 1 ADR = 100 shares).

The positive comparisons can be primarily attributable to higher commodity prices and stronger volumes amid robust domestic energy demand. PetroChina’s total revenue for the three months totaled RMB 363.3 billion, an increase of 35.7% from the year-earlier period.

Upstream
PetroChina, the world's most valuable oil and gas producer after Exxon Mobil Corp. (XOM), posted strong upstream output growth during the nine months ended September 30, 2010. Crude oil output rose 1.3% from the year-ago period to 639.7 million barrels (MMBbl), while marketable natural gas output was up 10.5% to 1,684.5 billion cubic feet (Bcf).

Average realized crude oil price during the first nine months of 2010 was $71.76 per barrel, representing an increase of 46.3% from $49.06 per barrel in the corresponding period of the previous year. Average realized natural gas price was $3.74 per thousand cubic feet (Mcf), 10.0% above the year ago level of US$3.40.

Downstream
PetroChina’s refinery division processed 657.4 MMBbl during the nine-month period, up from 607.1 MMBbl in 2009. The company produced 4.055 million tons of synthetic resin in the period (a rise of 32.4% year over year), besides manufacturing 2.673 million tons of ethylene (up 30.5% from the first nine months of 2009). It also produced 57.79 million tons of gasoline, diesel and kerosene during the period, as against 53.91 million tons a year earlier.

In marketing operations, the group sold 90.92 million tons of gasoline, diesel and kerosene during January–September 2010, an increase of 24.3% year over year.

Liquidity & Capital Expenditure
As of September 30, 2010, PetroChina’s cash balance was RMB 76.9 billion, while cash flow from operating activities was RMB 243.8 billion. Capital expenditure for the period reached RMB 160.7 billion, up 5.5% from the year-ago level.

Our Recommendation
Going forward, the main growth drivers for PetroChina are expected to be leveraged 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. However, we are concerned about the company’s oil production growth prospects, considering its heavy exposure to significantly mature-producing areas. Other near-term headwinds include high-priced gas imports in the face of low domestic gas sale prices and uncertainty regarding the rollout of a new national resources tax.

Taking these factors into account, we remain comfortable with PetroChina’s Zacks #3 Rank, which translates into a short-term Hold rating.

Source: PetroChina Reports Higher Profit on Increased Production