PetroChina Company Limited PTR has lost 23.8% in the past year and the struggle is likely to continue as the company’s oil production growth prospects appear bleak, considering heavy exposure to significantly mature producing areas.
The pricing chart for the past year shows that PetroChina has underperformed the Zacks Oil and Gas - Integrated - International industry, which has lost around 10.3%. Markedly, the Zacks Consensus Estimate for 2019 earnings per share has been revised downward to $4.58 from $4.90 over the past 30 days.
Following negative earnings estimate revision, the Beijing, China-based company currently carries a Zacks Rank #5 (Strong Sell). Here we take a sneak peek at the major issues plaguing PetroChina.
Factors Dragging the Stock Down
Increase in natural gas imports have resulted in mounting losses for PetroChina as it has to resell the commodity domestically below cost. In 2018, the company lost money to the tune of RMB 24,907 million on sales of imported natural gas and liquefied natural gas (LNG) from Central Asia and Burma.
PetroChina invested RMB 255,974 million in 2018, up 18.4% year over year. Further, it plans to hike 2019 capital outlay by another 18% to RMB 300,600 million. The increased capex may put pressure on the company’s leverage and returns going forward.
A long-term concern for PetroChina is its oil production prospects. While the company is heavily exposed to the Daqing Oil region, the field has significantly matured over the years and is currently well past its prime. In 2018, oil production — accounting for about 60% of the total output — inched up a mere 0.4% from the year-ago period.
Continued weakness in crude prices signify that PetroChina's Exploration and Production segment is likely to post tepid results going forward. While the international benchmark (or the Brent contract) is now down almost 16% from late-April highs, escalating concerns over slowing oil demand growth due to the ongoing U.S.-China feud is likely to result in a further drop in the value.
The company has been exploring expansion and acquisition opportunities offshore and abroad to reduce exposure to mature domestic areas. Nevertheless, amid competitive pressures from its domestic and international peers as well as regulatory constraints, limited meaningful progress has been made thus far. This situation is not expected to materially change any time soon.
Some better-ranked players in the energy space are Montage Resources Corporation MR, Approach Resources Inc. AREX and Chevron Corporation CVX. While Montage Resources sports a Zacks Rank #1 (Strong Buy), Approach Resources and Chevron hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Montage Resources’ sales growth is projected at 27.6% through 2019.
Approach Resources surpassed earnings estimates in three of the trailing four quarters, with the average positive surprise being 12.7%.
Chevron’s earnings growth for second-quarter 2019 is projected at 14%.
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