PetroChina Q3 profit disappoints on weak refining operations

29 October 2009 05:50  [Source: ICIS news]

By Fanny Zhang

GUANGZHOU (ICIS news)--Poor refining operations and lower crude prices compared to a year before heavily weighed down on the third-quarter financial performance of China’s biggest oil and gas producer - PetroChina, analysts said on Thursday.

PetroChina's September-quarter net profit at yuan (CNY) 30.8bn ($4.5bn), was lower than expected and represented a 23.5% year on year decline. Its net profit for the first three quarters of the year also fell 14.1% to CNY81.3bn.

“The quarterly profits of CNY30.8bn were 23% lower than market's expectations of CNY40bn,” said Qiu Xiaofeng, chief analyst at China Merchants Securities.

Qiu cited PetroChina’s weakness in refining and sales as the culprit for the poor third-quarter showing.

Sales of refining oil were up 8% year on year to 26.1m tonnes but gasoline sales slipped 1.8%, indicating PetroChina's "lack of competitiveness in the lucrative gasoline business", Qui said.

Lower crude prices also significantly weighed down on the company's financial performance. Its average realised price for crude oil in the first nine months was $49.06/bbl, 49.5% lower than the same period of the prior year, PetroChina said.

The sharp decline hit the company's upstream exploration operations hard, said Yang Wei, an analyst at China Guotai Junan Securities (GTJA).

"Although its refining sector could benefit from cheaper crude, fuel prices were capped by the government to prevent the possibility of getting windfall profits [from crude's fall],” said Yang, citing that China's fuel pricing mechanism guarantees a 5% margin for refiners.

PetroChina’s profit from operation in July-September was CNY43.6bn, 21.5% lower year on year, while operating profits in the first three quarters tumbled by 18.5% to CNY109.6bn, the company said.

Higher crude and fuel prices should help PetroChina to post better financial results in the fourth quarter, analysts said.

“We expect that crude prices would climb moderately in the next six months with demand recovering. This will help to improve PetroChina’s results”, said Qiu with China Merchants Securities.

Qiu estimated that net profits of the company would be CNY120bn for 2009, up 4.9% from 2008.

"The government would possibly raise fuel prices later this month and we expect companies like PetroChina to benefit from that,” said Yang at GTJA.

Since the introduction of the new fuel pricing mechanism late last year, the Chinese government has adjusted diesel and gasoline prices eight times, five of which had been upward adjustments, to make them more attuned to price swings of international crude.

PetroChina, meanwhile, maintained that its overall results beat its own expectations, with stable production.

In the first nine months of 2009, the company produced 3.7% less crude oil at 631m barrels compared to the same period last year, while marketable natural gas production increased 11.3% to 1,524bn cubic feet.

A total of 607m barrels of crude oil was processed by the company in the first three quarters, down 5.5% year on year, PetroChina said. Production of gasoline, diesel and kerosens fell 3.0% at 53.9m tonnes, while sales of these product increased 4.7% to 73.2m over the same period.

In the chemical business, PetroChina's ethylene output in the nine-month period rose 3.4% to 2.1m tonnes. The company produced 3.06m tonnes of synthetic resin and 290,000 tonnes of synthetic rubber in January-September, rising 1.0% and 15.9% respectively, from the same period last year.

Meanwhile, output of synthetic fiber raw materials and polymer declined 16.3% to 1.06m tonnes, the company said.

PetroChina's shares were traded 1.51% lower at CNY13.18, at the close of morning trade on Thursday.

($1 = CNY6.83)

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By: Fanny Zhang
+65 6780 4359

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