Financial Times: PetroChina leap-frogs rivals' profits

By Enid Tsui in Hong Kong
Published: March 21 2006 02:00 | Last updated: March 21 2006 02:00
PetroChina's net profit last year rose to be the fourth-largest among global oil and gas companies as a sharp increase in crude oil prices more than compensated for the state-owned group's less lucrative activities.
The Beijing-based group yesterday reported Rmb133.4bn ($16.6bn) in full-year net profit, a 28.4 per cent improvement from the year before on sales of Rmb552.2bn.
China's largest oil and gas company leap-frogged the profits at more established western rivals – Total and Chevron – and moved closer to third-place BP, which earned $22.3bn last year. ExxonMobil is the largest in the sector, reporting $36.1bn in profits for the year, followed by Royal Dutch Shell.
China, now the world's second-largest oil consumer behind the US, has been keen to nurture a domestic energy company with the financial clout to acquire major oil and gas assets around the world to fuel its rapid urbanisation.
PetroChina, meanwhile, plays a crucial role in developing energy infrastructure across China. Having borne the burden of financing and building the 4,200km west-east gas pipeline, which underpins the country's gradual migration to natural gas use, PetroChina will in 2006 spend about Rmb15.3bn to expand its natural gas and oil pipeline network.
“I am a little bit worried about PetroChina's investment in these pipeline projects, which normally take up to three years to complete. If the price of crude falls below $55 per barrel, the company may find it a challenge to sustain them,” said Shang Ma, director of oil and gas research at Fitch Ratings in Beijing. Total capital expenditure is projected to rise 19 per cent to Rmb149bn this year.
The company also suffered larger-than-expected operating losses at its refining segment, which stood at Rmb19.8bn last year compared with a profit of Rmb11.9bn in 2004.
David Hurd, head of oil and gas research at Deutsche Bank, said that most industry observers were betting on Beijing liberalising the pricing of refined oil products this spring. “Once that gets approved, PetroChina would at least see break-even at its refineries. And that's a substantial boost to its bottom line.”
PetroChina has set ambitious production targets and is aiming to boost annual oil and gas output by 5 per cent in the next five years. Jiang Jiemin, vice-chairman of the board of directors and president of the company, said that much of the expansion would come from overseas.
Meanwhile, Chen Geng, PetroChina's chairman, told reporters yesterday that China and Russia would sign three energy agreements today during a visit to Beijing by the Russian president, Vladmir Putin. The deals were likely to involve PetroChina's parent company, China National Petroleum Corporation, he added.
Additional reporting by Justine Lau in Hong Kong

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