PetroChina Q1 Net Profit Down 31.5%; CNOOC Gains Favor with Investors

Shanghai, Hong Kong and New York-listed PetroChina Co. Ltd. (PTR) saw its net profit in the first three months of 2008 decrease 31.5 percent year-on-year to RMB 28.89 billion ($4.13 billion), mainly due to high crude prices, according to its first quarter report released Tuesday.

On the same day, CNOOC Ltd (CEO), China's biggest offshore oil producer, released its first quarter report, which showed that the company's total revenue ballooned 61.8 percent year-on-year, to RMB 24.03 billion ($3.34 billion), due to high oil prices. CNOOC Ltd. did not announce its net profit for the first three months of the year.

"CNOOC continues to be our favorite oil giant for taking advantage of the earnings momentum from booming oil prices," Gordon Kwan, the head of China energy research at brokerage firm CLSA, said in a research note.

The company said in the report that the decrease in net profit was due to the high price of crude oil on the international market, capped domestic fuel prices and tax increases on the sale of domestic crude oil.

"The fall of PetroChina's net profit in the first quarter of the year was in line with market expectations," Kwan said.

"PetroChina's strong upstream operations cushioned the firm's earnings decline, making it much less severe than the 69 percent fall we saw for Sinopec (SHI)," Kwan said.

PetroChina's operating revenue in the first quarter was up 41.9 percent year-on-year to RMB 259.05 billion ($37.06 billion).

The rising revenue and the falling net profit reflects the squeeze on profit margins caused by the government's campaign to cap domestic fuel prices while crude oil import costs soar, Kwan said.

In addition, PetroChina's operating data showed that the company's crude oil output in the first quarter was 216 million barrels, up 3.3 percent year-on-year. Marketable natural gas output was 484.7 billion cubic feet during the same period, representing a year-on-year increase of 18 percent.

Regarding the company's refining business, PetroChina processed 217 million barrels, up 7.4 percent year-on-year.

PetroChina's oil refinery processing volume outpaced the growth of its upstream crude oil production, making the energy giant vulnerable to further margin squeezes if international oil prices continue to rise while domestic oil product prices stay down, Kwan said.

Meanwhile, CNOOC Ltd. generated RMB 22.42 billion ($3.21 billion) in sales revenue from selling crude oil in the first quarter, and RMB 1.4 billion ($200.29 million) from natural gas, up 64.4 percent and 19.4 percent year-on-year respectively.

According to a report from CNOOC Ltd., the company's daily output of crude oil was 392,722 barrels in the first quarter, while natural gas output was 601 million cubic feet per day, representing a year-on-year increase of 9.3 percent.

CNOOC Ltd. said in the report that the increases in daily oil and gas output were due to the company's good reservoir management, as well as its new projects going on-stream.

Aside from its domestic projects, CNOOC Ltd. also has two overseas production bases in Indonesia and Australia.