PetroChina Net Falls Most in 6 Years; Cnooc Jumps 89%

By Wang Ying and Winnie Zhu

Aug. 27 (Bloomberg) -- PetroChina Co., China's largest oil company, posted its steepest semi-annual profit decline in more than six years as refining losses eroded gains from record crude oil prices that drove better-than-estimated earnings at Cnooc Ltd.

Net income at PetroChina dropped 35 percent to 53.6 billion yuan ($7.8 billion) in the first half, lower than the 54 billion yuan median forecast of analysts in a Bloomberg News survey. The fall was the biggest since a 43 percent slump in the second half of 2001. Cnooc, China's third-largest oil producer, posted an 89 percent increase to 27.5 billion yuan, compared with an estimate of 22.1 billion yuan.

PetroChina, overtaken by Exxon Mobil Corp. as the world's most valuable company in the first half, was hurt by government fuel-price caps that undermined gains from a 46 percent jump in oil prices. Cnooc, which doesn't run refineries, increased crude reserves and production at home to post more than triple the earnings growth of Exxon and Royal Dutch Shell Plc.

``With global crude prices expected to decline, we expect PetroChina to perform better in the second half, while Cnooc will have stable growth,'' Yin Xiaodong, an analyst at Citic Securities Co., said by telephone from Beijing today.

Crude prices reached a record of $147.27 a barrel on July 11. Prices have dropped 19 percent since then and are still 63 percent higher than a year ago.

PetroChina, China Petroleum & Chemical Corp. and Cnooc are increasing output to meet the needs of the world's fastest- growing major economy, which has expanded by more than 10 percent for the past 5 years. China's oil consumption jumped 88 percent to 7.9 million barrels a day in 2007 compared with a decade ago, according to the BP Statistical Review.

Sudan, Iran

Chinese oil companies have been criticized by the U.S. and Western European countries for sourcing supplies from Sudan, Iran and Myanmar, which face trade sanctions.

China's refineries are still losing money even though the government raised gasoline and diesel prices by at least 17 percent in June, China National Petroleum Corp., the parent company of PetroChina, said on June 28.

PetroChina's second-quarter profit fell 38 percent to 24.7 billion yuan, according to Bloomberg calculations made by deducting earnings for the first three months from today's figures. Cnooc doesn't report quarterly results.

PetroChina's sales rose 40 percent to 549.5 billion yuan in the first six months. The company, 88 percent owned by the Chinese government through China National Petroleum Corp., will pay a first-half dividend of 0.131827 yuan a share.

``PetroChina was unable to fully pass on costs to gasoline and diesel users,'' said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co. in Taipei. ``Cnooc doesn't have this problem.''

Cnooc Sales

Cnooc's oil and gas sales rose 64 percent to 54 billion yuan from 33.2 billion yuan a year earlier. Total oil and gas production gained 8 percent to the equivalent of 92 million barrels of oil. The average price Cnooc got for its oil surged 74 percent to $102.5 a barrel, the company said.

Cnooc plans to increase crude oil and natural gas output by as much as 18 percent this year as economic growth spurs energy demand, the Beijing-based company said Jan. 29. Cnooc started production at two oil fields and announced two discoveries in the first half.

``Production will continue rapid growth in the next two years,'' David Johnson, a Hong Kong-based energy analyst at Macquarie Bank Ltd., said today.

PetroChina has a market value of $337.8 billion. The stock advanced 3.4 percent to close at HK$10.3, before the earnings announcement, while Cnooc gained 3.8 percent to HK$11.62.

Exxon, Shell

Exxon's earnings climbed 16 percent in the first six months while Shell's profit rose 29 percent, according to data compiled by Bloomberg. Both companies struggled to boost output as countries from Kazakhstan to Venezuela cut access to oil.

The government paid PetroChina and China Petroleum & Chemical Corp., the nation's largest refiners, rebates of 75 percent on the 17 percent value-added tax levied on crude imports in the second quarter.

The two companies will get about 40 percent rebate on the tax for crude imported between July and September, the South China Morning Post reported yesterday, citing people it didn't identify.

PetroChina will expedite overseas oil and gas projects to meet the country's rising energy demand, President Zhou Jiping said today. Annual capital spending will remain above 200 billion yuan in the coming years, and about 70 percent of that will be plowed into exploration and development, he told reporters in Hong Kong.

Asset Acquisitions

The Beijing-based company said today it will acquire a 52 percent stake in parent China National Petroleum Corp.'s unit, CNPC Hong Kong, for HK$7.6 billion to boost natural gas sales.

PetroChina has agreed to buy the China National's 50 percent stake in CNPC Exploration & Development Co., the Wall Street Journal reported yesterday, citing a person familiar with the matter. Zhou said the company needs more time to complete the purchase.

PetroChina also plans to set up a ``world-class'' oil refining operation, Zhou said. China's current refining capacity isn't enough to meet rising demand for oil products, he said.

The oil producer plans to boost its annual refining capacity by 14 percent to more than 160 million metric tons by 2010, Vice President Shen Diancheng said in May.

To contact the reporter on this story: Wang Ying in Hong Kong at wang30@bloomberg.net; Winnie Zhu in Hong Kong at wzhu4@bloomberg.net