Buy-recommended PetroChina (PTR), with estimated net present value [NPV] of $220 a share, offers portfolio representation mainly in crude oil production and non-U.S. domicile at a low McDep Ratio. First half results reported today disclosed the effect of price controls on refined products that were not quite as adverse as anticipated. Rising production volume was close to expectations.
The integrated company may also have been able to reduce the unfavorable impact of the Chinese “windfall profits tax” by charging itself a lower than expected crude oil price for volumes sent to its own refineries. Allowing for reduced tax on crude oil, continuing price controls on natural gas and diminished price controls on refined products, NPV is supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). Sticking to its policy of paying out 45% of earnings in dividends, management reduced the declared dividend in line with lower reported earnings. The cost of sacrificing profits, hopefully only temporary, seems amply reflected in a decline in stock price of 52% from the high last year. Meanwhile, crude oil price trends upward with the latest quote of $118 a barrel for delivery over the next six years above the 40-week average of $107.
Originally published on August 27, 2008.