PetroChina Company Limited, Q1 2020 Earnings Call, Apr 29, 2020 - SEHK:857

SEHK:857

The "Unknown Executive" provided responses during the Q&A session of the PetroChina Company Limited Q1 2020 Earnings Call. Here is a detailed list of their statements:

1. Response to Neil Beveridge (Sanford C. Bernstein & Co., LLC., Research Division):

   • Addressed the marketing segment's operating loss of RMB 16.5 billion, attributing it primarily to demand contraction and inventory loss.
   • Mentioned a limitation on the marketing segment of RMB 3.4 billion.
   • Explained that the oil price crash and market oversupply worsened the situation, further deteriorated by the negative impact of COVID-19.
   • Noted that the oversupply is a product issue for the marketing segment, and the duration of the pandemic is uncertain.
   • Highlighted the slowdown in the Chinese economy and the time required for consumption to catch up.
   • Mentioned an unfair competition environment due to relevant tax policies.
   • Stated that PetroChina cannot predict significant improvement in the marketing segment under these conditions.

2. Response to Andy Meng (Morgan Stanley, Research Division):

   • Regarding inventory loss, stated that the total number for the first quarter was 10.8%.
   • Noted that this figure is for the whole company and not segmented by division.
   • Mentioned that the company will perform an impairment test for assets according to accounting criteria due to oil price fluctuations.
   • Expressed hope for oil price recovery in the second or third quarter to avoid further inventory loss, emphasizing that this depends on oil price movements.

3. Response to Lei Mu (JPMorgan Chase & Co, Research Division):

   • Addressed the inventory loss and impairment in the first quarter, noting that most impairments occurred in the upstream and downstream marketing segments.
   • Mentioned that the company will conduct impairment testing based on accounting standards considering internal and external operating environments and oil price changes.
   • Reiterated the dividend payout policy, adhering to 45% of net profit for dividend payout, while acknowledging flexibility in extreme conditions.

4. Additional Response:

   • Explained the realized oil price for the first quarter, comparing it to the previous year and noting a slight drop.

   • Discussed the increase in sales models and the campaign to improve quality and efficiency, leading to a decrease in lifting costs.

   • Expected lifting costs to continue declining in the second quarter.

   • Suggested analysts wait for second-quarter results for profit predictions.

   • Addressed the refining sector's processing load, expecting it to climb to 80% in the second quarter.

   • Described adjustments in production mix to produce more market-oriented chemical products, such as medical-purpose polypropylene, and increases in diesel and gasoline production.

   • Noted the diesel-gasoline ratio increase from 1.04 to 1.31 in April.

Chong Xing, the Deputy Director of Investor Relations of PetroChina, provided several updates and details during the Q1 2020 earnings call:

1. Opening Remarks:

   • Welcomed attendees and thanked them for participating in the company's 2020 first quarter results analyst conference call.
   • Introduced himself as Xing Chong, Deputy Director of Investor Relations of PetroChina.
   • Mentioned the presence of Mr. Wei Fang, Assistant Secretary to the Board, Mr. Jiang Jie, Director of Investor Relations, Madame Yun Hong, Executive Director of Financial Department, and Madame [indiscernible], IR Officer of PetroChina.

2. Introduction by Wei Fang:

   • Invited Mr. Wei Fang, Assistant Secretary to the Board, to provide opening remarks.

3. Financial and Operational Highlights:

   • Described the impact of COVID-19 on the global economy and the resulting downturn in the oil and gas market.
   • Noted that the GDP of China decreased by 6.8% compared to the same period of the previous year.
   • Reported that the average spot price of Brent crude oil was about USD 50.14 per barrel, a decrease of 20.6% year-on-year, and the average spot price of WTI was about USD 45.52 per barrel, a decline of about 17% year-on-year.
   • Stated that domestic refined oil consumption decreased significantly year-on-year, and the demand for domestic natural gas also decreased.
   • Mentioned the steps taken by PetroChina to mitigate the impact of the pandemic, including prevention and control measures, resuming work and production, and focusing on optimization of production and operation.
   • Provided financial results, including a revenue of RMB 509 billion (a decline of about 14.4% year-on-year), an operating loss of about RMB 3.3 billion (a decrease in profit of RMB 32.9 billion year-on-year), and a net loss attributable to owners of the company of RMB 16.2 billion (a decrease in profit of RMB 26.5 billion year-on-year).

4. Exploration and Production Sector:

   • Highlighted the company's focus on efficient exploration and increasing recoverable reserves.
   • Reported that the oil and gas equivalent output reached 413.9 million barrels, up by 6.1% year-on-year, with overseas production accounting for about 13.6% of total production.
   • Noted that the Exploration and Production segment recorded an operating profit of RMB 14.8988 billion, up by 3.9% year-on-year, despite decreases in realized crude and natural gas prices.

5. Refining and Chemicals Segment:

   • Discussed the company's response to the decline in domestic refined oil markets, including optimizing production operations and adjusting processing loads.
   • Reported a decline in crude oil processing and production of major oil products, including gasoline, kerosene, and diesel.
   • Noted an operating loss of RMB 8.7 billion for the Refining and Chemicals segment, a decrease of RMB 11.77 billion year-on-year.

6. Marketing Segment:

   • Described the company's efforts to cope with the adverse effects of the COVID-19 situation and the market downturn.
   • Reported a decline in the sales of refined oil products, including gasoline, kerosene, and diesel.
   • Mentioned an operating loss of RMB 16.59 billion for the Marketing segment, a decrease of RMB 20.11 billion year-on-year.

7. Natural Gas and Pipeline Segment:

   • Reported an operating profit of RMB 11.36 billion, a decrease of 9.7% year-on-year.
   • Noted a net loss increase from sales of imported gas and LNG amounting to RMB 3.9 billion, an increase of loss of RMB 644 million year-on-year.

8. Corporate Social Responsibility:

   • Mentioned PetroChina's support in the fight against COVID-19, including measures for epidemic provision and control, donations to Hubei Province, and allocation of oil and gas resources to secure sufficient supply.

9. Future Strategy:

   • Outlined the company's plans to focus on key projects, cost-cutting, and efficiency enhancements.
   • Mentioned adjustments to the annual business development and investment plan based on changes in oil prices.
   • Highlighted strategic developments in resources, marketing, internationalism, and innovation, as well as a focus on low-carbon green energy development, digital transformation, and value creation.

10. Q&A Session:

    • Announced the start of the Q&A session and invited the first question.

Wei Fang, the Assistant Secretary to the Board of PetroChina, provided opening remarks and responses to several questions during the earnings call. Here’s a detailed summary of his comments:

Opening Remarks

• Wei Fang thanked everyone for attending the first quarter results conference call.
• He acknowledged the challenges posed by the COVID-19 pandemic, which led to an abrupt change in the global oil and gas market and a significant decline in oil prices.
• Despite the difficult situation, he noted that the COVID-19 prevention and control measures in China have proven effective, with positive signs of economic recovery and a gradual resurgence in domestic oil and gas demand.
• Wei Fang expressed personal excitement about the announcement that the People's Congress would be held on May 22, indicating a full resumption of normal life in Beijing and China.

Response to Neil Beveridge's Questions

• Wei Fang addressed Neil Beveridge's questions regarding CapEx plans and oil and gas production guidance.
• He mentioned that PetroChina has implemented a capacity enhancement and cost-cutting program.
• The CapEx for 2020 is estimated to be around RMB 200 billion, a reduction of close to 30% compared to the previous year.
• For production, the guidance is to maintain oil production levels based on prices and target a natural gas production growth rate of around 5%.

Response to Horace Tse's Question

• Wei Fang reiterated the importance of a price-driven mechanism in response to Horace Tse's question about production and CapEx outlook beyond 2020.
• Under oil prices of $40 per barrel, PetroChina aims to maintain the current CapEx scale and continue growing natural gas production at a rate of at least 5%.
• He mentioned that cost-cutting efforts will continue, with a 30% budget cut for each unit and a 50% reduction in management bonuses.
• Wei Fang expressed hope that the pandemic would be contained and that oil prices would recover, allowing PetroChina to accelerate oil and gas production.

Additional Comments

• Wei Fang emphasized the unprecedented nature of the current situation and the challenges it poses.
• He referenced the company’s efforts to “squeeze water out of a dry hole,” meaning they are working hard to extract maximum value even in difficult circumstances.

Closing Remarks

• Wei Fang concluded the call by expressing optimism despite the setbacks caused by the downturn in the global economy.
• He quoted a famous line by Li Bai, which translates to being prepared to face challenges head-on.
• Wei Fang wished everyone safety, health, and prosperity and looked forward to meeting them in various cities in China.

These remarks provide insight into PetroChina’s strategy and outlook amidst the challenges posed by the COVID-19 pandemic and volatile oil prices.