Dear PGM Capital, Blog readers,
In this weekend blog article we want to discuss with you the Q3-2013 earnings report of China’s biggest and second biggest Oil Companies, respectively PetroChina Company Ltd. (HKE:0857.HK) and China Petroleum & Chemical Corp (SINOPEC) (HKE: 0386.HK), reported on Tuesday October 29, 2013.
PETROCHINA COMPANY LTD:
Company Profile:
PetroChina Company Limited, was founded in 1988 and is based in Beijing, the People’s Republic of China and is a subsidiary of China National Petroleum Corporation.
The company produces and sells oil and gas in the People’s Republic of China and operates in four segments:
- Exploration and Production
Is involved in the exploration, development, production, and marketing of crude oil and natural gas. - Refining and Chemicals
Is engaged in the refining of crude oil and petroleum products; and production and marketing of primary petrochemical products, and derivative petrochemical products and other chemical products. - Marketing
Is involved in the marketing of refined products, trading activities, sells gasoline, kerosene, and diesel; and operates service stations. - Natural Gas and Pipeline
Is engaged in the transmission of natural gas, crude oil, and refined oil products. This segment operates pipelines of 66,776 km consisting of 40,995 km of natural gas pipelines, 16,344 km of crude oil pipelines, and 9,437 km of refined product pipelines.
As can be seen from below chart, the company’s stock appreciated with approx. 630 percent since it went IPO in April of 2000.
Based on Friday, November 1st 2013, closing price of HKD 8.80, the stock pays a very healthy dividend of 4.10 percent.
Highlights of Q3-2013 results:
- Net income rose to RMB 29.8 billion (US$4.89 billion), or RMB 0.16 a share, in the three months ended Sept. 30, from RMB 24.9 billion, or RMB 0.14 yuan.
The improvement can be primarily attributable to reforms of retail pricing, improved operations from the Refining and Chemicals business and outstanding results from the Natural Gas & Pipelines segment. - Total revenue in the third quarter increased 5.5 percent from last year’s 3rd quarter to RMB 581.7 billion, driven by higher oil and gas equivalent output.
- As of Sep 30, 2013, PetroChina’s cash balance was RMB 165.3 billion, while net cash flow from operating activities was RMB 205.7 billion. Capital expenditure for the period reached RMB 201.7 billion, up from the year-ago level of RMB 189.3 billion.
- Due to a significant decrease in operating expenses and controlled transmission cost of the pipeline, PetroChina’s natural gas business incurred a profit of RMB 23.4 billion during the nine months 2013, up by a whopping 22.5 billion from the year-earlier level of RMB 0.9 billion.
- In marketing operations, the group sold 119.422 million tons of gasoline, diesel and kerosene during Jan–Sep 2013, reflecting a 5.2 percent year-over-year increase.
CHINA PETROLEUM & CHEMICAL CORP (SINOPEC):
Company Profile:
China Petroleum & Chemical Corporation (Sinopec), which was founded in 2000 and is based in Beijing, the People’s Republic of China, is an energy and chemical company, which through its subsidiaries, engages in oil, gas, and chemical operations in the Peoples Republic of China. Sinopec is Asia’s largest refiner by capacity.
The company’s operates in 5 segments as follows:
- Its Exploration and Production segment explores and develops oil fields, produces, and sells crude oil and natural gas.
- Its Refining segment processes and purifies crude oil, manufactures and sells petroleum products. This segments products comprise gasoline, kerosene, diesel, and chemical feedstock.
- The company’s Marketing and Distribution segment owns and operates oil departments and service stations; distributes and sells refined petroleum products, such as gasoline and diesel through wholesale and retail sales networks.
- Its Chemicals segment manufactures and sells petrochemical products, including intermediates, synthetic resin, synthetic fiber monomers and polymers, synthetic fiber, synthetic rubber and chemical fertilizer, derivative petrochemical and other chemical products.
- Pipeline transportation of petroleum and natural gas.
As can be seen from below chart, the company’s stock has appreciated with approx. 420 percent since it went IPO in October of 2000. Based on Friday, November 1st 2013, closing price of HKD 6.36, the stock pays a very healthy dividend of 3.40 percent.
It is also worth mentioning that on June 10th 2013, the company’s stock had a 13:10 forward stock split.
Highlights of Q3-2013 results:
- Net income rose to RMB 22 billion (US$3.6 billion), or RMB 0.18 yuan a share, from RMB 18.3 billion yuan, or 0.15 yuan, a year ago: increase of 20 percent.
- Revenues in the third quarter improved 7.1 percent to RMB 724.7 billion yuan (US$117.8 billion) from RMB 676.7 billion (US$110.0 billion) last year’s 3rd quarter.
- Operating profit from the refining business was 6.7 billion yuan in the first nine months, compared with a loss a year earlier.
- During the first nine-month period ending Sep 30, 2013, Sinopec’s crude oil production grew 1.9 percent year over year to 249.7 million barrels, while natural gas volumes expanded 10.9 percent year over year to 486.3 billion cubic feet. Domestic crude oil production increased 1.4 percent year over year to 232.2 million barrels, while overseas volumes increased 9.3 percent year over year to 17.5 million barrels.
- Total crude-oil and natural gas production rose 4 percent in the first nine months to 331 million barrels.
- Refining business recorded refinery throughput of 174.2 million tons (up 6.4 percent year over year). Refining margins significantly improved to $5.49/barrel, up 149.5 percent year over year.
- The Marketing and Distribution segment sold 134.6 million tons of refined oil products, reflecting a 4.9 percent year-over-year increase.
- The output of ethylene from the Chemicals segment was 7.398 million tons, up 5.3 percent from the year-ago level.
- The company added 671 new service stations (including gas stations) during the first three quarters of 2013.
PGM Capital comments:
The performance of China’s refiners has improved since the second quarter, after Beijing allowed prices for refined products to be linked more closely with international prices. Previously, domestic adjustments that lagged behind changes in international prices, caused occasional losses for China’s refiners when crude prices rose sharply.
Analysts projected that SINOPEC would report a stronger second half of 2013. This was partially attributed to a higher contribution from overseas operations following Sinopec’s agreement to buy U$1.5 billion of oil and gas assets in Kazakhstan, Colombia and Russia from state-owned parent Sinopec Group. The acquisitions are aimed at putting Sinopec on par with integrated global energy companies such as Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell PLC.
After these acquisition, Sinopec’s overseas proven reserves will rise more than fourfold to 330.2 million barrels of oil equivalent. Its overseas production will more than double to 58.7 million barrels of oil equivalent. Sinopec’s only current overseas asset is a stake in an oil field off Angola’s shore.
Based on their fundamentals; Price to Earnings ratio, Price to Book, Dividend yield and free cash flow we have a BUY Rating on the stocks of both PETROCHINA and SINOPEC
The smallest of China’s three state-controlled oil companies, CNOOC Ltd. HKE: 0883.HK, reported a 7.9 percent net rise in this year first-half, thanks to stronger oil and gas output following the acquisition of Canada’s Nexen Inc.
As can be seen from below chart, CNOOC’s stock has appreciated with approx. 370 percent since it went IPO in March of 2004, based on Friday, November 1st 2013, closing price of HKD 15.78, the stock pays a very healthy dividend of 3.00 percent.
Based on its fundamentals; Price to Earnings ratio, Price to Book, Dividend yield and free cashflow we have a STONG BUY Rating on CNOOC’s stock.
These blockbuster results of the Chinese Oil Companies mentioned in this article, are the very opposite of those of Exxon Mobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS-A) which reported sharply lower third-quarter earnings on Thursday, October 31st, 2013.
- The results for Royal Dutch Shell, Europe’s largest company by market capitalization, were particularly disheartening, with earnings – excluding extraordinary items – dropping 32 percent from last year’s quarter to US$4.5 billion. Net income of U$4.7 billion was down 35 percent.
- Exxon Mobil, the largest American oil company, reported that its profits for the quarter were down 18 percent from last year’s despite slightly higher production. Revenue was down 2 percent to US$112.37 billion.
Link to Exxon-Mobile Q3-2013 results.
Link to Royal Dutch Shell Q3-2013 results.
Both companies blame weaker profit margins in refining and a sluggish global economy for their disappointing Q3-2013 results.
Based on these results we maintain our SELL rating on the stocks of both Royal Dutch Shell and ExxonMobile.
Due to the fact that Economic growth goes hand in hand with consumption of hydrocarbons, the Q3-2013 the blockbuster financial reports of China’s Oil Companies, compared with the disheartening reports of Royal Dutch and Exxon Mobile may very well be another proof of the shift of wealth and prosperity from WEST to EAST.
Below chart shows the stock performances of CNOOC, SINOPEC, PETROCHINA, EXXON MOBILE and ROYAL DUTCH SHELL during the last 12 years.
Disclosure:
We own all of the above mentioned Chinese Oil Companies, and we don’t own any ExxonMobile or Royal Dutch Shell stocks.
Before following any investment advice, please consider your investment horizon, financial position and risk tolerances and keep in mind that oil stocks are very sensitive to the global Economic situation and due to this they may be very volatile and that sharp corrections may happen in the short term.
Until Next Time
Eric Panneflek