Chinese energy giant PetroChina Co. Ltd. PTR announced first-half 2015 earnings of RMB 25.4 billion or RMB 0.14 per diluted share, compared with RMB 68.1 billion or RMB 0.37 per diluted share a year earlier. Earnings per ADR came in at $2.30 (exchange rate: US$1.00 = RMB 6.1, 1 ADR = 100 shares).

Moreover, China’s dominant oil and gas producer’s total revenue for the six months fell 23.9% from the 2014 period to RMB 877.6 billion. The negative comparisons can be primarily attributable to the collapse in oil prices, which drastically reduced profit at its biggest unit – exploration and production.

The group follows other big energy names from the country – CNOOC Ltd. CEO and China Petroleum & Chemical Corp. SNP – in reporting significant profit drops. 

Segmental Performance   

Upstream: PetroChina, the world's second-largest oil company by market value after Exxon Mobil Corp. XOM, posted strong upstream output growth during the six months ended Jun 30, 2015. Crude oil output – accounting for 65% of the total – rose 2.6% from the year-ago period to 477.5 million barrels (MMBbl), while marketable natural gas output was up 3.6% to 1,549.6 billion cubic feet (Bcf). As a result, PetroChina’s total production of oil and natural gas increased 2.9% year over year to 735.9 million barrels of oil equivalent.

But average realized crude oil price during the first six months of 2015 was $52.10 per barrel, representing a 48% decrease from $100.14 per barrel in the year ago period. This pushed down the upstream (or exploration & production) segment profit by 67.8% to RMB 32.9 billion. Some cushion came in the form of lower operating expenses, which declined 28.3% to RMB 213 billion.

Downstream: The Beijing-based company’s ‘Refining & Chemicals’ business turned profitable for the first time since 2011, generating an operating income of RMB 4.7 billion. This is a significant turnaround from the year-earlier period loss of RMB 3.4 billion. The improvement in the downstream division was due to PetroChina’s cost control initiatives, strengthening production and operational flexibility to adjust to market conditions. A 23.3% reduction in operating expenses also aided segment results.

PetroChina’s refinery division processed 495.7 MMBbl during the six-month period, down from 500 MMBbl in 2014. The company produced 3.731 million tons of synthetic resin in the period (a fall of 3.9% year over year), besides manufacturing 2.229 million tons of ethylene (down 6.9). It also produced 46.475 million tons of gasoline, diesel and kerosene during the period, as against 45.994 million tons a year earlier.

Natural Gas & Pipelines: PetroChina was able to take advantage of high natural gas consumption, which was up 2.1% year over year to 90.6 billion cubic meters. This helped the group’s natural gas business to report an income of RMB 14.9 billion in the first half, a massive 264.1% jump from the year-earlier profit of RMB 4.1 billion.

PetroChina’s results were also helped by optimal resources utilization, the implementation of a proactive marketing campaign, plus an improvement in its sales and marketing methods. The company’s hold over strategic pipeline networks provided further upside.

Marketing: In marketing operations, the state-owned group sold 77.82 million tons of gasoline, diesel and kerosene during Jan–Jun 2015, an increase of 3.4% year over year. However, weaker growth in the domestic economy and tepid refined products demand meant that PetroChina's segment profit plunged 65.8% year over year to RMB 2.8 billion.

Liquidity & Capital Expenditure

At the end of the first half of 2015, this Zacks Rank #3 (Hold) stock’s cash balance was RMB 66.1 billion, while cash flow from operating activities was RMB 110.9 billion. Capital expenditure for the period reached RMB 61.7 billion, down 32.3% from the year-ago level.

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