PetroChina, the nation’s largest oil and gas producer, has deviated from its long-standing practice of unveiling clear production targets when it announces its annual results, as the coronavirus pandemic and an oil price war clouds the global economic outlook.
“The oil price’s free-fall since last month has dealt the heaviest blow to our upstream production operation,” vice-president Li Lugang said via teleconference after the state-backed energy giant reported a worse-than-expected 13.9 per cent decline in annual net profit on Thursday.
“Given ongoing price volatility, we will adjust our production plan to balance volume versus profitability, short-term versus long-term profits, besides taking into account the need to ensure energy supply security.”
The uncertainties meant the company’s spending budget for this year’s projects – approved earlier by the board at 295 billion yuan – will be “dynamically optimised” to generate positive cash flow, said chief financial officer Chai Shouping.
“We are devising a plan to link projects spending to oil price,” he said, adding it will not make sweeping cuts across business divisions.
Net profit for last year came to 45.7 billion yuan, down from 53 billion yuan in 2018 and 5 per cent less than the 48.09 billion yuan average estimate of nine analysts polled by Bloomberg.
They expect the energy titan’s profit to fall sharply to 27.09 billion yuan this year.
A final dividend of 6.6 fen per share was proposed, down from 9 fen in 2018. The full year payout of 14.4 fen was lower than the 17.9 fen paid in 2018.
Operating profit from oil and gas production grew 30.7 per cent to 96.1 billion yuan last year, as a 4.6 per cent rise in output and a 1.6 per cent fall in cash costs – which excludes fixed costs – to lift each barrel of oil to US$12.11 helped offset a 10.7 per cent decline in the oil selling price.
However, intense industry competition caused by excess refining capacity saw profit from oil refining and chemicals production plunge 69.2 per cent to 13.8 billion yuan.
The operating loss from fuel marketing narrowed to 565 million yuan from 6.5 billion yuan in 2018. Natural gas import losses widened to 30.7 billion yuan from 24.9 billion yuan as volume grew to meet demand.
“We expect the oil price to fluctuate at a relatively low level this year,” said president Duan Liangwei. “If the coronavirus is contained so that the global economy rebounds and if OPEC and Russia can agree on production cuts again, it could bounce back to US$60 to US$65 a barrel.”
International oil prices have halved to around US$25 a barrel after Saudi Arabia unleashed a price war with Russia following a breakdown in talks early this month.
Meanwhile, Li warned that tougher measures from Beijing that will take effect on May 1 mean China’s oil and gas industry will become more competitive, as all mainland-registered firms with no less than 300 million yuan of assets will be allowed to bid for mining licences.
Exploration and mining licence fees will also rise “dramatically”, while holders of exploration licences that failed to meet investment commitments will be forced to relinquish their rights.
PetroChina shares on Thursday closed 2.3 per cent lower at HK$2.57, not much higher than a near 17-year low of HK$2.23 on March 19.
More from South China Morning Post:
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