PetroChina Company Ltd. ADRPTR

Morningstar Rating

Stock Research and Analysis

by Allen Good

As China's largest oil and gas company, PetroChina looks to secure future domestic and international supply to feed a nation hungry for energy.

PetroChina's creation began with the Chinese government's efforts to reform its oil and gas industry to foster competition and develop the expertise necessary to compete internationally. Read more

Bulls Say

PetroChina can access resources in countries with the assistance of the Chinese government that otherwise would not be politically accessible to other companies.

China will account for a large portion of the global energy demand growth in coming years and the company will grow in turn.

Recent declines in crude prices, combined with recent increases in the government's prices for refined products, will generate refining profits.

PetroChina will expand its natural gas business, the largest in China, through the expansion of pipeline and distribution infrastructure, combined with China's promotion of natural gas.

With the recent acquisition of Singapore Petroleum, PetroChina gains refining assets in high-growth markets outside of China. Read more

Bears Say

The government may be reluctant to raise refined product prices if international oil prices rise dramatically.

Enhanced oil recovery techniques used on mature fields will increase production costs in future years.

Implementation of the special oil levy in 2006 took a bite out of profits and will continue to hamper the company's ability to take full advantage of high crude prices.

Refined products competition will intensify as other Chinese firms enter the market in high-demand areas and compliance with the WTO opens markets to imports. Read more

Strategy

PetroChina will focus on expanding its production base through exploration in China and internationally, while enhancing recovery from mature fields. It hopes to achieve improved performance in the refining and chemical segments through integration of production and sales activities. Read more

Management

The Chinese government owns 86% of PetroChina through its control of the parent company China National Petroleum Corporation, or CNPC. Control allows the Chinese government to appoint board members of their choosing, opening the door for potential cronyism and rewarding of Communist party members. Read more

Profile

PetroChina is an energy company controlled by the Chinese government with operations consisting of exploration and production activities, refining and marketing of petroleum products, production and marketing of petrochemicals, and the transmission and storage of natural gas. Read more

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