PetroChina Company Limited, 2019 Earnings Call, Mar 26, 2020 - SEHK:857

SEHK:857

Enlai Wu [Former Secretary to the Board of Directors] 💬

During the PetroChina Company Limited 2019 Earnings Call on March 26, 2020, Enlai Wu, the Former Secretary to the Board of Directors, made the following statements:

Opening Remarks
- Enlai Wu welcomed everyone to PetroChina's 2019 Annual Results Announcement.
- He introduced the Board and management members present, including:
  - Mr. Dai Houliang, Chairman
  - Mr. Duan Liangwei, Executive Director and President
  - Mr. Li Luguang, Vice President
  - Mr. Chai Shouping, CFO
  - Mr. Ling Xiao, Vice President
  - Mr. Yang Jigang, Vice President
Presentation Outline
- Wu outlined the agenda for the presentation, which included:
  - A review of the financial performance in 2019.
  - An overview of operational performance in 2019 and the outlook for 2020.
  - Remarks by the Chairman.
Transition to Financial Review
- Wu handed over the floor to Mr. Chai Shouping, the former CFO and Company Secretary, for a financial review of 2019.
Closing Remarks
- After the presentations by Mr. Chai and Mr. Duan, Wu thanked them and introduced the Chairman, Mr. Dai Houliang, to speak next.
Acknowledgment of Changes
- Wu acknowledged the changes in the company's leadership following a shareholders' meeting where resolutions regarding new directors were passed.
- He expressed gratitude for the support and suggestions received from shareholders.
Summary of 2019 Performance
- Wu summarized the management's briefing on the annual results, highlighting the company's continued growth in its oil and gas business, with increases in domestic oil production and gas production achieving the highest growth rate in five years.
Introduction of Chairman's Remarks
- Wu introduced the Chairman, Mr. Dai Houliang, to speak about the company's response to the challenges posed by the COVID-19 pandemic and falling oil prices, and the strategies to handle these risks and difficulties.

Shouping Chai [Former CFO & Company Secretary] 💬

Shouping Chai, the Former CFO & Company Secretary of PetroChina, provided a detailed financial review of the company’s performance in 2019 during the earnings call. Below is a summary of his statements:

Financial Performance Overview

Revenue: Realized revenue of CNY 2.52 trillion, marking a 6% increase year-on-year.
Operating Profit: CNY 121.762 billion, a decrease of 1% compared to the previous year.
Net Profit Attributable to Parent Company Shareholder: CNY 45.682 billion, down 13.9% year-on-year.
Earnings Per Share (EPS): CNY 0.25, down CNY 0.04 from the previous year.

Capital Expenditure (CapEx)

Total CapEx for 2019 was CNY 296.776 billion, representing a 15.9% increase year-on-year.
Exploration and Production (E&P) CapEx accounted for 77.54% of the total, amounting to CNY 230.117 billion, an increase of 0.97 percentage points year-on-year.

Cost Management

Lifting Cost: Decreased by 1.6% year-on-year to $12.11 per barrel.
Refining Per Unit Cash Cost: Remained flat at CNY 168.64 per ton.
Per-Ton Marketing Cost: Increased by 3.5% year-on-year to CNY 330.76 due to factors like depreciation, amortization, freight, staffing costs, and sales increases.

Financial Status

Total assets by December 31, 2019, reached CNY 2.73 trillion, up 12% compared to the end of 2018.
Debt-to-Asset Ratio: 47.2%, an increase of 4.9 percentage points year-on-year. Adjusting for the impact of the new leasing principle, the increase was 1.3 percentage points.
Gearing Ratio: 24.4%, up 1.7 percentage points year-on-year.

Cash Flow Management

Free Cash Flow (FCF): CNY 39.924 billion.
Cash Flow from Operating Activities: Reached CNY 359.6 billion, an increase of CNY 6.354 billion or 1.8%.
FCF decreased by 53.5% year-on-year, attributed to higher E&P investments and cash CapEx.

Segment Performance

Exploration and Production (E&P) Segment:
- Operating Profit: CNY 96.097 billion, up 30.7%.
- Average Realized Oil Price: $60.96 per barrel, down 10.7% year-on-year.
Refining and Chemicals Segment:
- Operating Profit: CNY 13.764 billion, down 69.2% year-on-year.
- Refining Business: CNY 10.337 billion, down CNY 26.54 billion.
- Chemicals Business: CNY 3.427 billion, down CNY 4.396 billion.
Marketing Segment:
- Loss of CNY 0.565 billion, a decrease in loss by CNY 5.885 billion.
International Trade:
- Operating Profit: CNY 5.935 billion, up CNY 0.609 billion year-on-year.
Natural Gas and Pipeline Segment:
- Operating Profit: CNY 26.108 billion, up 2.3% year-on-year.
- Gas Marketing Business: Loss of CNY 16.139 billion, an increase in loss of CNY 46 million.

Dividend Policy

The company maintains a stable dividend payout policy, aiming to pay 45% of IFRS-based net profit attributable to parent company shareholders plus a special dividend as a return to shareholders.
Recommended Year-End Dividend: CNY 0.06601 per share, with a dividend payout ratio of 70%.

Chai concluded by stating that the company values shareholder returns and is committed to maintaining a healthy financial position and cash flow to support its ongoing development.

Liangwei Duan [Non-Executive Director] 💬

Liangwei Duan, the Non-Executive Director of PetroChina, provided a comprehensive review of the company’s performance in 2019 and outlined the outlook for 2020. Here is a detailed summary of his statements:

Review of Performance in 2019

Economic and Market Challenges: PetroChina faced significant economic pressures, volatile international oil prices, and intense competition in the domestic oil and gas market.
Strategic Focus: The company focused on optimized production, structural adjustments, reforms, innovations, and risk management to achieve stable growth.
Production Growth: Main production indicators showed stable growth, and operational performance met expectations.
Exploration and Production (E&P):
- Increased domestic E&P efforts, enhancing reserves and production.
- Made significant discoveries and achieved historical exploration breakthroughs in various basins.
- Strengthened international cooperation with steady progress in overseas business.
Refining and Chemicals Business Transformation:
- Aimed for a shift from low-value refined products to higher-value chemicals.
- Achieved steady progress in the transformation of the Refining and Chemicals business.
Marketing Efforts:
- Expanded the market for refined products, resulting in increased sales.
- Enhanced the end-user market to boost profitability.
International Trade:
- Exceeded 0.4 billion tons, marking a 27.4% year-on-year increase.

Key Achievements in 2019

Domestic Exploration:
- Historical exploration breakthroughs in the Southern Junggar Basin, Tarim Basin, and Southern Sichuan Basin.
- Record-high new proven oil and gas geological reserves.
Production Highlights:
- Crude output rebounded, and gas output reached a five-year high.
- Significant increases in output from key regions like Changqing, Tarim, Xinjiang, and the Southwest region.
- Overseas production growth of 5.7%, contributing 13.8% to the company’s total production.
Refining and Chemicals:
- Optimized resource allocation and refinery utilization rates.
- Increased production of refined oil, gasoline, kerosene, and chemicals.
- Achieved a reduction in the diesel-to-gasoline ratio to 1.08.
Marketing:
- Realized refined oil sales of 0.188 billion tons, up 5.1% year-on-year.
- Expanded the service station network to 22,365 locations.
Gas and Pipeline Transmission:
- Sound business operations with steady progress in developing the gas production, supply, storage, and marketing system.
- Increased gas sales by 19.5% and domestic gas sales by 7.4%.

International Operations

Cooperation and Expansion:
- Participated in bilateral and multilateral events to deepen international cooperation.
- Signed an MOU to expand cooperation with Kazakhstan and a contract for the extension of Oman Block 5.
- Key progress in overseas risk and rolling exploration, particularly in Chad, the Doseo Basin, the Bongor Basin, and Bilma, Niger.
Project Milestones:
- Chad Project Phase 2.2 and Halfaya Phase 3 came online.
- Rumaila in Iraq and Aktobe in Kazakhstan operated beyond plans.

Technology and Innovation

Sci-Tech Innovations:
- Breakthroughs in E&P technologies, Refining and Chemicals technologies, and advanced research.
- National sci-tech progress awards for projects related to carbonate reservoirs and shale oil production.

Health, Safety, and Environmental (HSE) Performance

Safety Accountability:
- No bid or above accidents in production.
- Reductions in emissions of COD, ammonia, nitrogen, sulfur dioxide, and oxynitride.
- Achieved energy and water conservation targets.

Outlook for 2020

Strategic Directions:
- Deepen reforms and innovations to improve corporate value.
- Strive to become a first-class international energy company.
- Bring better returns to shareholders.
Business Segments:
- E&P: Focus on exploration and reprioritize production capacity projects based on efficiency assessments.
- Refining and Chemicals: Focus on transformation and upgrading, produce less low-value refined products and more chemicals.
- Marketing: Develop premium markets and optimize service station construction.
- Natural Gas and Pipeline: Ensure key pipeline projects and develop the natural gas market and terminal facilities.

Duan concluded by expressing confidence in PetroChina’s ability to navigate the challenges of the COVID-19 pandemic and falling oil prices while maintaining a focus on quality and efficiency improvement.

Houliang Dai [Chairman of the Board] 💬

During the PetroChina Company Limited 2019 Earnings Call, Houliang Dai, the Chairman of the Board, provided the following statements:

Welcome and Acknowledgment:
- Dai welcomed everyone to the teleconference, expressing appreciation for their ongoing support and attention to PetroChina.
- He acknowledged the recent shareholders' meeting where resolutions were passed regarding new directors, and he thanked shareholders for their support and valuable suggestions.
Performance Overview:
- Dai highlighted the company’s strong performance in 2019, noting the growth in oil and gas production, particularly the highest growth rate in gas production in five years.
- He mentioned key breakthroughs in risk exploration both domestically and internationally, which helped solidify the company’s resource base.
- He affirmed that PetroChina maintained a sound financial status.
Response to Market Changes:
- Dai addressed the sudden changes in the oil and gas market, including the global spread of COVID-19 and the sharp drop in international oil prices.
- He noted the positive signs in China’s epidemic control situation and the gradual recovery of the economy and oil and gas market demand.
Strategic Focus:
- Dai emphasized the importance of focusing on strategic guidance and outlined specific strategies:
  - Resources Strategy: Conduct efficient exploration, improve success rates, and add scale recoverable reserves to consolidate the resource base.
  - Efficient Development: Maintain a steady oil production and relatively fast growth of gas.
  - Market Strategy: Be customer- and market-oriented, maximize shareholder value, accelerate Refining and Chemicals transition and upgrading, and optimize crude sources to reduce costs.
  - Internationalization Strategy: Quality operation of existing projects, focus on developing new projects, optimize strategic layout and asset structure, and enhance international operations.
  - Innovation Strategy: Increase research input, tackle key technological problems, and leverage science and technology's supporting and leading roles.
Green and Low-Carbon Development:
- Dai stressed the need to strengthen the gas production, supply, storage, and marketing system and promote diversified gas supply systems.
- He mentioned the importance of accelerating studies on new energy and alternative energy business layouts, focusing on solar, wind, hydrogen, biomass, and geothermal energies.
Digital Transition and Smart Development:
- Dai highlighted the promotion of deep convergence between IT and all business areas.
- He discussed the use of AI, Big Data, IoT, and other technologies in the oil and gas industry and the building of IT systems and cognitive computing platforms.
- He mentioned the improvement of digitalization and intelligentization, including smart oil and gas fields, smart refineries, and smart gas stations.
Value Creation:
- Dai discussed the implementation of quality and efficiency enhancements in response to low oil prices and the impact of COVID-19.
- He talked about optimizing production and operation, adjusting production capacity building pace, optimizing resources allocation and product mix, improving internal management, and controlling costs and expenditures.
- He expressed the intention to pay close attention to capital market changes, intensify corporate value management, and enhance growth potential and value-creation capabilities to bring greater value to shareholders.
Closing Remarks:
- Dai reflected on PetroChina's 20 years in the capital market and thanked shareholders, colleagues, and friends for their support.
- He expressed hope for continued support and looked forward to sharing the value and achievements of PetroChina's growth.