PetroChina Shares Fall as Costs Curb 2006 Profit Gain

Shares of PetroChina Co., China's largest oil company, fell after full-year profit rose at the slowest pace in four years and Vice-Chairman Jiang Jiemin said spending may rise 25 percent because of drilling costs.

The stock fell 1.5 percent to HK$8.60 at 12:29 p.m. in Hong Kong while the benchmark Hang Seng Index gained 0.5 percent. Net income rose 6.6 percent to 142.2 billion yuan ($18.4 billion), missed the 149.8 billion yuan median estimate in a Bloomberg analyst survey.

PetroChina expects to outspend Exxon Mobil Corp. and Royal Dutch Shell Plc this year as it drills deeper and further afield and expands refineries to supply the world's fastest-growing major economy. Exploration spending last year climbed because of higher prices for fuel oil, water, electricity and steel.

``We do not believe PetroChina can effectively control its cost,'' Thomas Wong and Lauren Wong, Hong Kong-based analysts at UBS AG wrote in a research note today. ``The result confirms our concerns on cost and capital expenditure.''

The company produced more oil and natural gas than ever before in 2006 to meet demand in the world's fastest-growing major energy market. The cost of extracting the fuels, known as lifting costs, jumped 28 percent to $6.74 a barrel last year from $5.28 in 2005, PetroChina said yesterday.

Shell, BP

Capital spending may jump to 185.7 billion yuan ($24 billion) this year from 148.7 billion yuan in 2006, PetroChina said yesterday.

Exxon Mobil, the world's biggest oil company, set a capital budget of $21 billion for this year because of ``higher levels of drilling and project activity as well as market factors,'' the Irving, Texas-based company said March 7. Shell, Europe's largest oil company, said Feb. 1 it will spend as much as $23 billion to stem an expected fifth year of declining production.

BP Plc's 2007 capital spending will rise to about $18 billion, Europe's second-largest oil company said Feb. 6.

The company's shares, which surged 74 percent in 2006, have lost more than a fifth of their value in Hong Kong this year, compared with the 3.5 percent decline in the benchmark index.

PetroChina's second-half profit fell 13 percent to 61.52 billion yuan, according to Bloomberg's calculations.

Refining Losses

``Higher-than-expected costs took their toll,'' Credit Suisse Group analysts Prashant Gokhale, Edwin Pang and Horace Tse wrote in a research note today. ``While 2006 results by themselves are partly reflected in the recent underperformance, there is further downside risk.'' They cut their target price for the stock to HK$7.16 from HK$7.50.

PetroChina recorded losses from processing crude into fuels and chemicals last year after global prices rose to records, boosting raw material costs. PetroChina supplies more than 40 percent of the nation's fuel, according to its Web site.

State curbs on fuel prices that prevent refiners from passing on higher oil expenses widened PetroChina's refining and marketing loss to 29.1 billion yuan in 2006, from 19.8 billion yuan a year earlier.

The earnings are ``disappointing,'' David Johnson, Hong Kong-based analyst at Macquarie Securities Ltd., said in a research note today. He downgraded the stock to ``neutral'' from ``buy.''

China's economy, which grew 10.7 percent last year, is expected to continue to expand at a fast pace, PetroChina said yesterday. The company forecast that oil and gas demand will ``increase steadily.''

`Reassuring Guidance'

The company's forward guidance on profit and energy demand is reassuring ``as cheap capital cost continues to support robust economic growth in China,'' said Gordon Kwan, head of China oil and gas research at CLSA Ltd. in Hong Kong. ``There is scope to revise up'' forecast for the company's 2008 profit, he said.

PetroChina's profit rose to a record for a fifth year as the nation's economy expanded at the quickest pace in 11 years. The 2006 profit is the highest for a publicly traded company in Asia. Toyota Motor Co., Asia's second-most profitable listed company, may post net income of $13.3 billion for the year ending March 31, based on the median estimate of five analysts surveyed by Bloomberg.

Exxon Mobil, Shell and PetroChina are among companies that have gained from a five-year advance in oil that pushed prices to a record average of $66.25 a barrel in New York last year.

Exxon Mobil said Feb. 1 2006 profit rose 9.4 percent to $39.5 billion, a record for a U.S. company. Shell said the same day its full-year profit reached $25.4 billion, the highest for a U.K.-listed company.

source:www.bloomberg.com