CNOOC,SINOPEC and PETROCHINA..

PetroChina H-shares fall on cloudy earnings outlook2008-4-18

HONG KONG (XFN-ASIA) - PetroChina's H-shares in Hong Kong were sharply lower as its A-shares in Shanghai fell below its initial public offering price of 16.70 yuan for the first time since its debut on the mainland bourse last October. Dealers said pressures on PetroChina's shares in the Hong Kong and Shanghai markets may continue in the near term as its earnings prospects this year are clouded by losses in its refining operations and a levy which it pays the government for its oil output. Pressures on its earnings are ongoing despite the continuing uptrend in crude oil prices. At 11.15 am, PetroChina's H-shares were trading down 0.16 hkd or 1.58 pct at 9.94, off a low of 9.84. The Hang Seng index was up 130.9 points or 0.54 pct at 24,389.86. At 10.11 am, PetroChina's A-shares were down 1.6 pct at 16.60 yuan. "PetroChina is the biggest component stock in Shanghai and it is among the first that is targeted by investors in the event of any general downtrend or uptrend in that market," said Gideon Lo, an analyst at DBS Vickers. "Its continuing weakness in Shanghai and underperformance in Hong Kong relative to CNOOC and Sinopec is due to a view that its earnings this year will come under significant pressures despite the fact that crude oil prices remain at high levels," he said. "Chinese government policies are largely being blamed for PetroChina's predicament. Unlike Sinopec, which has already been allocated a government subsidy of over 10 bln yuan for its oil refining losses, there are no signs as yet that PetroChina will receive similar assistance," he said. "PetroChina also hardly benefits from the prevailing high crude oil prices because it has to pay the government a levy of 40 pct if crude oil price is above 40 usd per barrel," he said. Lo said the Chinese government appears to have taken the view that PetroChina should be able to offset losses in its downstream operations from revenue that it generates from its upstream business. "CNOOC is a pure upstream play and it is expected to benefit the most from the crude oil uptrend. In the case of Sinopec, its oil refining losses are mitigated by substantial amounts of subsidy from the government," he said. "PetroChina is in a relatively poorer situation as it is largely left to fend for itself - that's why most fund managers like CNOOC and Sinopec (rather) than PetroChina in many instances," he said. Lo noted that PetroChina's A-share performance does not always have a direct correlation to its counterpart in Hong Kong. "But there are times, like today, when bearish sentiment towards PetroChina's A-shares can pull down its H-shares in Hong Kong," he said.