Energy Business

PetroChina (PTR) Gets Slammed By Chinese Government

Tx00338coilwellgusherodessatexasposIt is hard to make money when your own government has policies that prevent it. PetroChina (PTR) followed China Petroleum (SNP) to the earnings wood shed. According to the AP, PTR is expected to report that its first-half net profit fell by at least a third, analysts say, as losses in its refining business eroded gains from surging crude oil prices.

China made the case that investors should want to own pieces of its state-controlled companies because it would offer access to the largest firms in the world’s most populated country. In theory, the program works. If the central government meddles in the normal course of business, it may not.

China insists on keeping gas and diesel prices low. There is a great deal of sense to that for a nation which is the low cost provider of goods for the rest of the world. Transportations price increases would damage the low wage advantages of companies in China. China’s export machine would slow. The country would fall into recession.

Keeping gas and diesel prices below market also helps address the alarming growth of inflation in the nation. It now stands at almost 10%, and for some products, especially food, the rate of increase is closer to 15%. A sharp spike in fuel prices could break the back of consumer spending within the country.

All of that speaks to the wisdom of a policy meant to keep GDP improving sharply. At the same time, it undermines the amount of profit that some of China’s largest companies can deliver to shareholders. PetroChina could actually loss money in the second half if oil stays at $115 and it has to offer refined gas at prices which are not available in any other large nation in the world.

China could come clean and admit that the central government will continue down a path to undermine investor returns for entities that it took public. It might even offer some compensation. But, that won’t happen.

Douglas A. McIntyre