We have recently upgraded energy giant PetroChina Co. Ltd. (PTR) ADRs to Outperform from Neutral, reflecting the company’s leverage to the fast growing Chinese market and the turnaround in commodity prices. Being one of the two Chinese integrated oil companies, PetroChina is well-positioned to capitalize on these favorable trends.
We also like PetroChina’s recent agreement with EnCana Corp. (ECA) – Canada’s largest natural gas producer – to buy half of the latter’s prolific Cutbank Ridge shale natural gas assets in British Columbia and Alberta for approximately C$5.4 billion (U.S.$5.4 billion). We see this transaction as part of PetroChina’s long-term strategic plan to explore one of the world’s largest untapped energy regions and supplement its conventional reserves.
Despite some near- to medium-term concerns that include heavy exposure to significantly mature-producing areas, high-priced gas imports and uncertainty regarding the impact of the newly rolled out national resources tax, the company’s long-term outlook looks compelling.
As such, we believe PetroChina is well positioned going forward and view it as an attractive investment. Our long-term Outperform recommendation is supported by a Zacks #1 Rank (short-term Strong Buy rating).
PetroChina is the largest integrated oil company in China. The firm’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 transmission of natural gas, crude oil and refined products.
PetroChina was established in November 1999 as a part of a restructuring of China National Petroleum Corporation (CNPC), a state-owned entity, which currently holds a majority stake of 86.20% in PetroChina. The company operates in four segments: Exploration & Production, Natural Gas & Pipelines, Refining & Chemicals, and Marketing, which accounted for 78%, 10%, 4%, and 8%, respectively, of its fiscal 2010 operating profit.