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Introduction:

Founded in 1988 and headquartered in Beijing, PetroChina Company Limited (NYSE: PTR) primarily engages in the exploration, production, and sale of crude oil and natural gas in the People’s Republic of China. The company operates in four segments: Exploration and Production, Refining and Chemicals, Marketing, and Pipeline. The Exploration and Production segment explores, develops, produces, and sells crude oil and natural gas; as of December 31, 2010, it had 11,278 million barrels of proved reserves of crude oil; and 65,503 billion cubic feet of proved reserves of natural gas.

The Refining and Chemicals segment refines crude oil and petroleum products; and produces and markets petrochemical products, derivative petrochemical products, and other chemical products. The Marketing segment engages in the marketing of refined products and trading business; as of December 31, 2010, it operated 17,996 service stations.

The Pipeline segment involves in the transmission of natural gas, crude oil, and refined products, as well as in the sale of natural gas; as of December 31, 2010, its pipelines measured a total length of 56,840 kilometers, including 32,801 kilometers of natural gas, 14,782 kilometers of crude oil, and 9,257 kilometers of refined product pipelines. PTR is currently compelling valued relative to its global peers at 13.4x P/E (ttm), 6.8x Enterprise Value/EBITDA (ttm), and has an attractive 2.7% dividend yield

Business Overview:

PetroChina is the largest oil and gas producer and distributor in China and playing a dominant role in the country’s entire energy value chain. PTR is the largest company in China based on revenue and is also one of the largest oil companies in the world. PetroChina was established as a joint stock company with limited liabilities by China National Petroleum Corporation under the Company Law and the Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies on November 5th, 1999.

The American Depositary Shares (ADS) and H shares of PetroChina were listed on the New York Stock Exchange on April 6, 2000 and the Stock Exchange of Hong Kong Limited on April 7, 2000 (stock code: 857), respectively. It was listed on Shanghai Stock Exchange on November 5, 2007 (stock code: 601857). As of December 31, 2010, the company is still 86.292% owned by the People’s Republic of China.

Exploration and Production:

In 2010, PetroChina continued its domestic exploration success with strategic discoveries in the Erdos, Qaidam, Bohai Bay, Tarim, and the Sichuan Basins. For the year, the company’s oil reserve replace ratio was 1.02x and the gas reserve replacement ratio was 2.02, for a consolidated oil and gas equivalent reserve replacement ratio of 1.32x.In 2010, the Exploration and Production segment recorded an operating profit of RMB153.7 billion, representing a year-on-year increase of 46.4%.

Because of continued deployment of secondary recovery techniques at mature oilfields and water-flood technologies for gas fields, PetroChina achieved excellent oil and gas production growth in 2010.

PetroChina is also growing its international footprint to tap new sources of energy outside its main domestic market. While the total overseas oil and gas production decreased slightly in 2010, new developments, such as the Sino-Kazakh co-op agreement and the acquisition of Arrow Energy in partnership with Shell, should drive future growth.

Refining and Chemicals:

PetroChina is one of the largest oil-based products producers and distributors in China. The company has built many large-scale refineries including six ten-million-ton refineries, and established a terminal distribution network of oil products across China. By December 31, 2010, the total primary distillation capacity reached 990 million barrels, accounting for approximately 40% of the mainland China total.

In 2010, the Guangix and Urumqi refineries were completed and commissioned, which helped the division achieve record levels of output volume, despite the volatile global crude prices. In 2010, the Refining and Marketing segment recorded an operating profit of RMB7.8 billion, representing a year-on-year decrease of 54.7%.

As of the end of 2010, PetroChina now has an impressive refining and chemicals plant footprint, including six 10-million-ton refining bases, four ethylene bases, and two aromatics bases.

Marketing:

In 2010, PetroChina sold 120 million tons of gasoline, diesel and kerosene, representing a 19.3% year-on-year increase and the company’s retail market share reached 38.4%, a 20 basis-point improvement year-over-year. In 2010, the Marketing segment recorded an operating profit of RMB16.0 billion, representing a year-on-year increase of 20.3%.

Pipeline:

In 2010, PetroChina completed several important milestones for its Pipeline business segment. First, the Sino-Russian crude oil pipleline was completed and commissioned, which will provide an important strategic role in diversify the oil and gas import channels to China. Next, Line B of the Central-Asia/China Gas Pipeline and the Zhong-Huangpi section were completed and commissioned, which will allow the import of natural gas from Central Asia to Central China.

Finally, the third Shaanxi-Beijing gas pipeline achieved full operation, which will help ensure stable natural gas supplies for the capital city. In 2010, the Pipeline segment recorded profit from operations of RMB20.4 billion, representing a year-on-year increase of 7.2%

Consolidated Financial Results:

In 2010, PetroChina’s realized increases in turnover and net profit that were higher than the increases of the crude oil price, which indicates the company’s production and operations strategies were well targeted, scientific, and effective.

Both turnover and net profit increased in 2010, with Exploration and Production driving most of the increased business performance.

Key Risks:

· PetroChina is a commodity producer in a highly competitive, global industry. Changes in oil and gas prices can significantly impact PTR’s operationsand financial results

· PetroChina has pursed international exploration in geopolitically unstable countries, which exposes it to significant business interruption risks

· PetroChina is highly levered to the continued economic development of mainland China. Any slowdown in growth or increased levels of inflation could conflict with PTR’s development objectives.

Trading Comparables:

PetroChina appears to be competitively valued relative to its global trading peers.

$USD billions

PetroChina

Exxon Mobile

Chevron

CNOOC

China Petroleum & Chemical

Ticker

PTR

XOM

CVX

CEO

SNP

Market Cap:

$286.3

$422.3

$216.4

$115.5

$90.7

Revenue

$224.2

$342.6

$189.6

$28.0

$292.7

Gross Margin

45.7%

32.4%

33.1%

73.5%

22.5%

EBITDA

$46.1

$55.9

$38.7

$15.0

$27.3

Operating Margin

12.8%

12.0%

13.5%

38.6%

6.1%

Net Income

$21.4

$30.5

$19.0

$8.3

$11.0

P/E

13.4x

13.7x

11.4x

14.0x

8.3x

P/S

1.3x

1.2x

1.2x

4.2x

0.3x

FV/EBITDA

6.8x

7.8x

5.6x

7.5x

4.4x

Dividend Yield

2.7%

2.0%

2.6%

2.2%

2.0%

Summary:

PetroChina has a track-record of financial growth based on the continued economic development of mainland China. The company presents a compelling opportunity for investors to gain exposure to commodities and emerging markets growth.

Source: PetroChina: Fueled for Future Growth