Thursday, May 11, 2006

Petrochina (PTR) Overview

PetroChina Company Limited (the “Company”) was established as a joint stock company with limited liability under the Company Law of the People’s Republic of China (the “PRC” or “China”) on November 5,1999 as part of the restructuring of the China National Petroleum Corporation (“CNPC”). In the restructuring, CNPC injected into the Company most of the assets and liabilities of CNPC relating to its exploration and production, refining and marketing, chemicals and natural gas businesses. The Company, one of the largest companies in the PRC in terms of sales, is engaged in a broad range of petroleum and natural gas related activities, including:
● the exploration, development, production and sales of crude oil and natural gas;
● the refining, transportation, storage and marketing of crude oil and petroleum products;
● the production and sales of basic petrochemical products, derivative chemical products and other chemical products; and
● the transmission of natural gas, crude oil and refined products, and the sales of natural gas.

The operating revenues increased by 39% year over year. This was helped by increased prices for energy and the improving exchange rates for the Chinese Reminbi vs. the U.S dollar. The operating expenses increased by 46% year over year. The company increased its spending on natural gas and oil deposits by 28% year over year. The net profit increased by 28% year over year. The results are good against increasing global oil and natural gas prices.

The production of oil and natural gas increased by 5.1% year over year. Output of crude oil increased by 1% and output of natural gas increased by 27% year over year. The P/E of the company is around 12 which is somewhat higher compared to the Exon Mobil or Chevron. However, the company pays out approximately 50% of its earnings as dividends to share holders. PTR already boasts of a market cap of 211 billion dollars which is higher than Chevron Texaco. The company also has better gross margins compared to Chevron Texaco. Warren Buffett famously said that the stock is no longer undervalued. However, it does look as though the stock is fairly valued at the moment. The law of large numbers dictates that the upside for the company is somewhat limited. However, the company is still reasonably priced at current levels. If one is looking for large cap stock with steady income, this is a good company to own.

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