Thursday, 30 October 2008

PetroChina Lags Farther Behind ExxonMobil, For Now

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Guanyu said...

PetroChina Lags Farther Behind ExxonMobil, For Now

29 October 2008

International crude oil is hovering around $63 per barrel, close to its level two years ago. Meanwhile, China’s oil product prices now exceed those in the US. According to the latest US figures from the Energy Information Administration, the retail price for regular gasoline in the US is about 5.26 yuan per liter, while the price for 93# gas in China commonly stands at 6.25 yuan. This should be good news for China’s petroleum companies and their investors, but A-shares of PetroChina, which has been called the earning-est company in Asia, closed at under 10 yuan yesterday.

Before its A-share IPO, PetroChina’s market value had been higher than that of ExxonMobil, the “most profitable company in the US,” but now it increasingly lags the US colossus.

PetroChina’s half-year financial report shows the company’s profit in the first six months of 2008 dropping to 48.4 billion yuan from 75.9 billion yuan during the same period last year, a fall of 36%. On the other hand, ExxonMobil’s first half profits grew by 16% year on year from $19.5 billion to $22.6 billion.

The rocketing international oil price contributed greatly to ExxonMobil’s market share. In 2007, its sales reached $358.6 billion with a net profit of $40.6 billion, the highest profit in US history.

The main difference between the two companies is the different market situations they find themselves in. Most of the petroleum produced by ExxonMobil is sold in the US and in Europe, where energy prices are not controlled by the government. ExxonMobil and its fellow oil behemoths can pocket huge profits when the oil price rockets. But unfortunate PetroChina produces and sells most of its petroleum products in China, where the government’s control over energy prices prevents it from transferring ballooning costs to consumers. In 2007, PetroChina’s losses in the refining sector reached 36.2 billion yuan, growing to 59.02 billion yuan in the first half of this year, despite oil prices as high as Jupiter.

And PetroChina insiders point to heavy taxes as another drag on PetroChina’s profits. Figures show that PetroChina’s sales and taxes in 2007 were 866.8 billion yuan and 236.3 billion yuan, respectively, a tax rate of 27%. During the same year, ExxonMobil’s sales volume and tax payment in the US was $121.1 billion and $14.3 billion, a tax rate of only 12%.

PetroChina experts say, “PetroChina’s profit growth is doomed to be harder than ExxonMobil’s. The heavy tax burden leads directly to the growing gap.” They believe the government needs to reduce the company’s tax payment in order to promote the profit growth.

But PetroChina also needs to improve its cost control and internal management. Foreign media estimate that PetroChina’s costs for drilling and oil pipe construction in 2007 totaled about $36 billion, an increase of 30% year on year, while ExxonMobil’s costs of the same type in the same period dropped 3.1% year on year.

Although currently PetroChina trails ExxonMobil, opportunities to advance are many. In the first half of 2008, PetroChina’s oil and gas production increased by 6.5% year on year, and its crude oil processing grew by 4.3%. Production of the company’s major chemical products all saw an increase. During the same period, ExxonMobil’s oil and gas production dropped by 7%, and its crude oil processing remained the same as in the first six months in 2007. Production of major chemical products dropped by 3%. PetroChina discovered an oil field in the southeast of Hebei Province with the reserve of one billion tons, because of which PetroChina’s resource reserve increased by 19% in the past five years. During the same period, Exxonmobil’s oil and gas reserve has grown by only 6%.

When PetroChina returned to the A-share market, a Goldman Sachs analyst said if Beijing cancelled the special petroleum proceeds and other taxes remained unchanged, all indicators being normal, PetroChina’s profit would exceed ExxonMobil’s in 2012.