PetroChina Cut to Neutral - Analyst Blog

We are downgrading PetroChina Co. Ltd. (PTR) ADRs to Neutral from Outperform, particularly concerned by the high-priced gas imports in the face of low domestic gas sale prices. 

As more high-priced gas import is being brought in, there is an urgent need for PetroChina to press the government to raise artificially low domestic gas sale prices in line with global levels. As of now, gas imports are coming at a loss, thereby pressurizing the company’s profitability. 

Sluggish oil production growth prospects and heavy exposure to significantly mature producing areas also remain near-term headwinds, in our view. Unpredictable energy prices and an ambitious investment program add to the downbeat sentiment. 

However, the company’s leverage to the fast growing Chinese market, the turnaround in commodity prices, and attractive growth prospects in the downstream and natural gas sectors offsets most, if not all, of the negatives. We believe that the continuous demand growth in China (expected to outperform developed countries in the next few years) will fuel PetroChina’s medium-term earnings outlook. 

As such, we see the stock performing in line with the broader market. 

PetroChina is the largest integrated oil company in China. The company’s activities include exploration, development, production and sale of crude oil and natural gas, refining, transportation, storage and marketing of petroleum products, manufacture and sale of chemical products, and the transmission of natural gas, crude oil and refined products. 

PetroChina operates in four segments: Exploration & Production, Natural Gas & Pipelines, Refining & Chemicals, and Marketing.
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