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PetroChina is the largest oil and gas producer in China and the second largest company in China in terms of revenue.[1] PetroChina is an integrated oil and gas company whose operations include oil and gas exploration and production, refining, and the marketing and transportation of oil, refined products, natural gas, and other petrochemicals.[2] The company’s largest segments are its refining and marketing segment and its exploration and production segment, which generated $127,911 million and $89,043 million in net income in 2008, respectively.[3] In 2008, profits from PetroChina’s exploration and production operations increased 15.8% year-over-year and were the largest contributor to net profits for the year. In 2008, the total natural gas and oil output reached 1,185 million barrels of oil equivalent.[4] In its refining segment, the company increased production of gasoline, kerosene, and diesel during 2008 in order to meet the demands of a growing automotive industry. The company has three ten-million ton refineries, and established a terminal distribution network in 2008. Its refineries processed 849.8 million barrels of oil equivalent in 2008.[5] Because almost all of the company’s 2008 earnings came from oil and natural gas operations, Petrochina’s future revenues depend heavily on the price and consumption of natural gas and oil in China. PetroChina sells its oil and natural gas products at prices determined by the Chinese government.[6] Although government set prices are not as susceptible to changes due to market conditions as oil sold in North America, government policies like fuel price caps and windfall taxes were partially responsible for the 22% decline in annual profits in 2008.[7] However, government regulation has its benefits as well; the company also received government subsidies equivalent to $ 2.3 billion for losses in oil refining.[8] For PetroChina, the ability to generate revenues from its operations not only depend on the oil and natural gas markets in China but also rely on the responsiveness of the Chinese government to changing energy prices.[9] The government launched a new pricing mechanism for refined products in early 2009, which ensures profits of oil refiners according to an analyst at Orient Securities.[10]
[edit] Business and Financials
PetroChina Company Limited is one of China's national vertically integrated oil companies, and is involved in four major petroleum-related activities:
- Exploration, development, and production of crude oil and natural gas;
- Refining, transportation, storage and marketing, including import and export, of crude oil and petroleum products;
- Production and sale of chemical products
- Transmission, marketing and sale of natural gas.
PetroChina was established in November of 1999 as a part of a restructuring of China Petroleum National Corporation (CNPC). As a part of the restructuring CNPC injected into PetroChina most of the assets and liabilities associated with its exploration and production, refining and marketing, chemicals and natural gas businesses. In August, 2008, PTR purchased the remaining 50% of CNPC, making CNPC's international projects (excluding its projects in the controverial region of Sudan) wholly owned by the company.[11]
Today, PetroChina is one of the largest companies in China in terms of sales and should be a primary beneficiary of China's growing consumption of natural resources. It was also briefly the largest company in the world by market cap, moving ahead of goliath Exxon Mobil (XOM) on November 5th, 2007, for a few weeks. It should be noted that the value of the company was difficult to calculate because of the volatile nature of its shares, but the symbolic nature of the displacement was important because it signaled growing international confidence withing the investment community about the prospects not only of the company but of China's future potential growth as well.
In 2006, PetroChina had estimated proved reserves of 11,618 MMBbl of oil and 53,469.2 Bcf of natural gas; it produced 2,275.9 thousand barrels per day of oil and 3,758.7 million cubic feet per day of gas. The company had a downstream throughput of 2,150.8 thousand barrels per day, and operated 16,624 retail stations.
PetroChina's net profit increased by 2.4%, to CNY 145.63 billion, in 2007; revenue grew 21%, to CNY 835.04 billion. Both increases were driven by rising oil and gas prices and increased sales volumes, though income growth was offset by volatile refining margins[12].
[edit] PetroChina Controls China's Oil and Gas Distribution Infrastructure
PetroChina owns and operates China's largest pipeline network, delivering 60% of the country's oil and 95% of its natural gas[13]. With so much of the transportation infrastructure in the company's hands, PetroChina can earn money off competitors who want to ship their own oil - and can afford to discount transportation of its own product. This will be especially important in the future, when China's increasing "openness" allows the oil majors in and leads to increased transportation volumes. Even expanding the country's pipeline capacity will not take much of PetroChina's market share away - the next stages in China's oil infrastructure expansion are to be taken on by PetroChina and China Petroleum & Chemical.[14]
[edit] Trends and Forces
[edit] As an Affiliate of China's Largest State Oil Company, PetroChina Enjoys Monopolistic Powers
China National Petroleum Company is the largest state-owned vertically integrated oil and gas company in China; the Chinese government owns 88% of PetroChina[15] - and has control over appointing the board of directors. China's government tends to award contracts for operations within the country - exploration and production, for example, or retail station operation - and as an affiliate of the largest state-owned oil company (and an international, publicly traded corporation that attracts foreign investors), PetroChina gets the lion's share of China's oil business. Not only that, no Western companies are yet allowed to explore in China, and imported oil faces heavy tariffs, so PetroChina faces little competition from the supermajors.
[edit] PetroChina's Business is Reliant on the Chinese Market
While PetroChina has begun to expand its exploration and production operations abroad, the company is only allowed to sell its crude and refined products in China. Currently, China produces a little more than 3.4 million barrels per day[16] - less than half of the 7.9 million barrels per day projected for its 2007 demand[17]. The country's government is loathe to become dependent on foreign oil, and has imposed high taxes on imported crude and refined products in order to stimulate the growth of its own oil companies (like PetroChina). As the Chinese economy grows, the country's demand will continue to out-pace its supply, driving prices up further - another good thing for PetroChina. In the current international economy, however, the credit crunch and possibility of a recession in Western markets could lead to a slowing of China's export-based manufacturing economy, causing oil demand to fall and PetroChina's business to go with it - especially if competition increases from international oil companies in the future.
[edit] To secure future supplies, PetroChina expands its abroad operations
As China’s biggest oil company, PetroChina has the potential of expanding its refining capacity through the purchase of foreign-located refineries.[18] In 2009, PetroChina announced that it was in talks about expanding its refining operations into Europe through an investment in the Ineos refinery at Grangemouth in Scotland.[19] After falling heavily into debt, lneos began speaking to numerous large oil companies about investments or a possible acquisition of the refinery.[20]
The possible investment in lneos is part of PetroChina's plan to boost its refining capacity worldwide.[21] In June 2009, PetroChina purchased two pipelines in western China from its state-owned parent for $1.4bn.[22] In May, PetroChina agreed to buy 45.5 percent of Singapore Petroleum Company in the first major Chinese offshore acquisition of a downstream energy company. For the 45.5 percent stake, PetroChina paid $1 billion.[23]
[edit] PetroChina cuts 2009 expectations, investments in anticipation of weak demand for oil
In 2008, PetroChina's profits fell 22% when compared to annual profits in 2007. Zhou Jiping, the President of PetroChina, attributed the fall in annual profits to lower oil consumption in the second half of 2008 as well as government policies.[24] The decline in oil prices and energy consumption most affected the company's refining segment, which had an annual net loss of approximately $12.1 billion in 2008.[25] The decline in energy prices had less of an effect on PetroChina's exploration and production segment, which generated profits that were 15.8% higher than in the previous year.[26] Production of oil and gas both increased in 2008. In particular, natural gas production increased 14.5% in 2008, and the company's natural gas and pipeline segment's operating profits rose 28.5% in 2008.[27] Government policies including a special tax on domestic crude oil sold at more than $40 per barrel, and national ceilings on domestically refined oil products significantly reduced the company's profits in 2008.[28] Although PetroChina received a government subsidy worth approximately $2.3 million for losses in its refining segment, the company paid almost $6 billion more in taxes in 2008.[29] However, the new government pricing mechanisms introduced in 2008 have the potential to change the effect taxes and price caps have on PetroChina's annual profits.[30]
In March 2009, PetroChina reduced its 2009 production expectations by 10% to 20% in response to weak demand for crude oil.[31] The production cuts in 2009 will apply to all of the company's oilfields except for the company's two largest fields, the Daqing and Changqing fields.[32] PetroChina's 2009 production expectations for the Daqing field are close to actual production in 2008.[33] Despite lower oil consumption levels, production in the Changqing fields has the potential to increase in 2009 as PetroChina invests in more production equipment for the region.[34]
For the first quarter of 2009, PetroChina’s net earnings and profits dropped due to lower oil prices and declining production. When compared to the first quarter of 2008, both net earnings and net profits dropped 35.2% in the first quarter of 2009.[35] Refining output fell 14.6% from a year earlier, and the company produced 5.7% less crude oil for the quarter.[36] PetroChina’s reduced both its production and refining outputs in response to declining domestic consumption.[37] While domestic sales of refined products were 2.8% lower in the first quarter of 2009, the International Energy Agency has forecast that China’s oil demand has the potential of dropping .8% in 2009.[38] Earnings for future quarters of 2009 are capable of increasing if international prices remain at $50 and the Chinese government opts to raise retail fuel prices.[39]
[edit] Despite Low Energy Consumption, PetroChina expands operations
On May 24, 2009, PetroChina secured a 45.5% stake in the Singapore Petroleum Company from the Keppel Corporation Limited (BN4'B-SG) for $1 billion . PetroChina is awaiting Chinese regulatory clearance before it purchases the remaining 54.5% of the Singapore downstream energy company.[40] The purchase is part of PetroChina's plan to expand its international operations, particularly in Asia.[41] For the most part, Chinese companies like SINOPEC Shangai Petrochemical Company (SNP) and PetroChina have been encouraged by the Chinese government to purchase upstream companies.[42]
[edit] Competition
Because PetroChina is a subsidiary of China's largest state-owned oil company, it currently has few major competitors - among them, CNOOC and Sinopec. Once China opens up to international development, however, PetroChina will face retail and exploratory competition from the oil majors. While this may seem like a huge advantage, given that PetroChina cannot sell outside of its country, retail stations opened in China by foreign companies must be opened in joint venture with Chinese companies - and Sinopec and PetroChina are the most likely to be involved. Furthermore, it remains to be seen whether or not the country will remove the petrol tariffs that prevent the international oil community from competing effectively with PetroChina. The oil majors and nationals - Exxon Mobil, Chevron, Shell. BP, ConocoPhillips, Eni S.p.A., LUKOIL, etc. - are vertically integrated oil companies that explore, extract, and refine petroleum products. Supplying their own oil allows them to keep margins down, while their immense size allows them to keep capital expenditures high to expand refining capacity and increase exploration and production globally.
2007 production data is as yet unavailable for PetroChina, but below are some metrics for its future competitors.
| CONOCOPHILLIPS[43] | ROYAL DUTCH SHELL[44] | EXXONMOBIL[45] | CHEVRON[46] | BP[47] | LUKOIL[48] | Eni S.p.A[49] | Total S.A.[50] | |
|---|---|---|---|---|---|---|---|---|
| Reserves | ||||||||
| Oil and Gas Liquids (Millions of barrels) | N/A | N/A | 7,744 | 4,665 | 5,492 | 15,927 | 3,219 | 6,778 |
| Natural Gas (Billions of cubic feet) | N/A | N/A | 32,610 | 19,137 | 41,130 | 26,597 | 18,090 | 26,730 |
| Production | ||||||||
| Oil and Gas Liquids (Thousand b/d) | 770 | 1,818 | 2,616 | 1,544 | 1,304 | 1,926 | 1,020 | 1,609 |
| Natural Gas (Million cf/d) | 5,087 | 8,214 | 9,384 | 4,799 | 7,222 | 1,545 | 4,114 | 4,839 |
| SUNOCO[51] | CHEVRON[52] | VALERO[53] | EXXON MOBIL[54] | Royal Dutch Shell[55] | SINOPEC[56] | WESTERN REFINING[57] | ConocoPhillips[58] | BP[59] | LUKOIL[60] | Eni S.p.A[61] | Total S.A.[62] | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Refinery Capacity (Million BPD) | 0.91 | 2.115 | 3.10 | 6.4 | 3.953 | 3.42 | 0.234 | 2.7 | 3.81 | 1.162[63] | 0.544 | 2.71[64] |
| Number of Refineries (including partial interests) | 5 | 19 | 17 | 38 | Over 40 | 17[65] | 4 | 17 | 17 | 7 | N/A | 40 |
| Number of Retail Gas Stations | 4,684 | 25,100 | 1,962 | Over 35,000 | 46,000 | 28,885 | 155 | 10,350 | 24,100 | 5,793 | 6,441 (in Europe) | 17,000 |
[edit] Notes
- ↑ PetroChina: 2008 Annual Report
- ↑ PetroChina: 2008 Annual Report
- ↑ PetroChina: 2008 Annual Report
- ↑ PetroChina: 2008 Annual Report
- ↑ PetroChina: 2008 Annual Report
- ↑ China Daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ China Daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ China Daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ China Daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ China Daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ Seeking Alpha: :Petrochina To Buy 50% Stake in CNPC for $11.8B:
- ↑ China Oil Web: "PetroChina 2007 Net Profit CNY145.63 Bln Vs CNY142.22 Bln"
- ↑ Morningstar Analyst Report, PTR, 03-05-2008
- ↑ Self Investors: "China Oil Perspective - CNOOC (CEO), PetroChina (PTR) & China Petroleum (SNP)"
- ↑ Self Investors: "China Oil Perspective - CNOOC (CEO), PetroChina (PTR) & China Petroleum (SNP)"
- ↑ Earth Policy Institute: "Is World Oil Production Peaking?"
- ↑ China Institute: "China 2007 oil demand steady at 7.9 mln bpd - EIA"
- ↑ Financial Times Online: PetroChina in talks on UK investment, June 2009
- ↑ Financial Times Online: PetroChina in talks on UK investment, June 2009
- ↑ Financial Times Online: PetroChina in talks on UK investment, June 2009
- ↑ Financial Times Online: PetroChina in talks on UK investment, June 2009
- ↑ Financial Times Online: PetroChina in talks on UK investment, June 2009
- ↑ Financial Times Online: PetroChina in talks on UK investment, June 2009
- ↑ china daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ china daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ china daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ china daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ china daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ china daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ china daily: PetroChina's net profit for 2008 down 22%, March 2009
- ↑ Reuters:PetroChina cuts '09 output targets on falling demand, March 2009
- ↑ Reuters:PetroChina cuts '09 output targets on falling demand, March 2009
- ↑ Reuters:PetroChina cuts '09 output targets on falling demand, March 2009
- ↑ Reuters:PetroChina cuts '09 output targets on falling demand, March 2009
- ↑ FT.com:PetroChina reports 35% fall in earnings, April 2009
- ↑ FT.com:PetroChina reports 35% fall in earnings, April 2009
- ↑ FT.com:PetroChina reports 35% fall in earnings, April 2009
- ↑ FT.com:PetroChina reports 35% fall in earnings, April 2009
- ↑ FT.com:PetroChina reports 35% fall in earnings, April 2009
- ↑ Financial Times: PetroChina secures 45% SPC stake, May 2009
- ↑ Financial Times: PetroChina secures 45% SPC stake, May 2009
- ↑ Financial Times: PetroChina secures 45% SPC stake, May 2009
- ↑ COP 2007 10-K
- ↑ RDS 2007 10-K
- ↑ XOM 2007 10-K
- ↑ CVX 2007 10-K
- ↑ BP 2007 10-K
- ↑ LUKOIL Company: General Information
- ↑ E 2007 Annual Report
- ↑ Total 2007 Results Press Release
- ↑ SUN 2007 10-K
- ↑ CVX 2007 10-K
- ↑ VLO 2007 10-K
- ↑ XOM 2007 10-K
- ↑ RDS 2007 20-F
- ↑ SHI 2006 Fact Sheet
- ↑ WNR 2007 10-K
- ↑ COP 2007 10-K
- ↑ BP 2007 20-F
- ↑ LUKOIL Company: General Information
- ↑ E 2007 Annual Report
- ↑ Total Website: "From Crude Oil to the Consumer"
- ↑ Conversion factor is 1 BPD = 50 tonnes per year
- ↑ Obtained by Dividing Total Throughput of 2.413 MMBPD by utilization rate of 89%
- ↑ Sinopec Refining Overview
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