Good afternoon, ladies and gentlemen. On behalf of PetroChina Company Limited, I would like to welcome you all and thank you for attending the company's 2020 first quarter results analyst conference call. I am Xing Chong, Deputy Director of Investor Relations of PetroChina. For the call today, we have Mr. Wei Fang, Assistant Secretary to the Board. We also have Mr. Zhang Lei, Director of Investor Relations, Madam Yu Meng, Deputy Director of Financial Department, and also Madam Zhu Tongnan, Doctor Sun Bo, IR Officer of PetroChina. First, it's my pleasure to invite Mr. Wei Fang, Assistant Secretary to the Board, for an open remark. Mr. Wei, please.
Thanks, Brian, for the introduction. Hi everyone, this is Wei Fang, Assistant Secretary to the Board of Directors. On behalf of the management and my team at PetroChina, I would like to thank you all for attending today's first quarter results conference call. I would like to also send our best regards to all the research teams and PMs for your long-term support to PetroChina and our team in Beijing and Hong Kong. Starting from this year, we saw abrupt changes in the global oil and gas market as the COVID-19 pandemic crushed the demand. The steep decline of oil prices has increased the pressure from all oil and gas companies. As you can see from the first quarter numbers, we have suffered greatly from this unprecedented situation. However, we took comfort to see that COVID-19 prevention and controlling measures have proven to be effective in China.
The government's measures to resume work and production are showing good results, with signals showing acceleration of economic and social development and gradual recovery of domestic oil and gas demand. Also, we had very good news today. I have to say one more. We had very good news today that the People's Congress will be held on May 22nd. This is a very good indication of the full resumption of normal life in Beijing and in China. So personally, I'm very thrilled to hear the good news, and hopefully there will be more and more good news from around the world in our fight against the pandemic. With that good news, I would like to give the floor to Dr. Brian Xing to have a quick update on the first quarter results.
I have to remind you all that the copy of the first quarter presentation could be downloaded from the corporate website. So the copy of the first quarter presentation could be downloaded from the corporate website under Roadshow section. Thank you. Thank you, Brian.
Okay. Thank you, Mr. Wei. Now I will present the company's first quarter financial and operational highlights. In the first quarter of 2020, the growth of the world economy and trade was severely affected by the COVID-19, with a great downward risk and significant increase in factors in stability and uncertainty. The economy in China was also affected significantly. The GDP of China decreased by 6.8% as compared with the same period of last year. As a result of the decline of macroeconomy, supply exceeded demand in the international oil market, and international oil prices dropped significantly, of which the average prices decreased as compared with the same period of last year. The average Brent crude oil price was about $15.14 per barrel, representing a decrease of 20.6% year-on-year.
The average spot price of WTI was about $45.52 per barrel, declined about 17% year-on-year. While the domestic refined oil consumption decreased significantly year-on-year, the issue of excessive supply was further aggravated. The demand of domestic natural gas markets also decreased as compared with the same period of last year. In the first quarter of 2020, facing the severe and complicated global economic environment and operational situation, PetroChina has tried its best efforts to reduce the impact of COVID-19 by taking effective measures to prevent and control COVID-19, resuming work and production in an orderly way, launching a campaign of improving quality and enhancing profitability, focusing on optimization of production and operation, and devoting major efforts to intensify the control of investment, costs, and expenses.
According to IFRS, in the first quarter of 2020, PetroChina reported revenue of RMB 509 billion, declined about 14.4% year-on-year, mainly affected by the sharp drop in oil and gas prices and the decrease in sales. Operating loss was about RMB 3.3 billion, representing a decrease in profit of RMB 32.9 billion year-on-year. Net loss attributed to owners of the company was RMB 16.2 billion, representing a decrease in profit of RMB 26.5 billion year-on-year, mainly affected by the decline in revenue and the inventory impairment losses caused by the sharp drop in oil prices. Basic loss per share was about RMB 0.089, representing a decrease of about 0.145 RMB year-on-year. In the exploration and production sector, the company insisted on highly efficient exploration and endeavored to increase recoverable reserves qualified for economies of scale.
The company kept enforcing its resources foundation and gave priority to profitable development. In the first quarter, the oil and gas equivalent output reached 413.9 million barrels, up by 6.1% year-on-year. The overseas oil and gas equivalent output accounts for about 13.6% of the total production of the company. In the first quarter of 2020, the exploration and production segment reported operating profits of RMB 14.88 billion, up by 3.9% year-on-year. The average realized crude price was $54.39 per barrel, down about 8.6% year-on-year, among which the domestic realized price was about $56.42 per barrel, down by 5.0% year-on-year.
The average realized natural gas price was $5.10 per thousand cubic feet, down by 23.1% year-on-year, among which the domestic realized price was $5.80 per thousand cubic feet, down by 11.5% year-on-year. The oil and gas lifting costs declined by 8.9% year-on-year. In the refining and chemical segment, the company actively responded to the adverse impact of the demand decline in domestic refined oil markets and optimized production operations by rationally adjusting the processing loads of chemical production facilities and the product structure. In the first quarter of 2020, PetroChina processed 276.5 million barrels of crude oil, down by 9.6% year-on-year. Production of major oil products was 25.2 million tons, down by 13.8% year-on-year. Gasoline output declined by 13%. Kerosene output declined by 22.3%. Diesel output declined by 12.7%.
Production of chemical products increased by 2.9% year-on-year, in which the production of gasoline declined about 1.3%. The refining and chemical segment recorded an operating loss of RMB 8.7 billion, a decrease of RMB 11.77 billion year-on-year, of which the refining business recorded an operating loss of RMB 6.29 billion, a decrease of RMB 6.4 billion year-on-year. This is mainly due to the adverse effect of decrease in sales of refined products, drop in prices, and decrease in profit from the inventories. The chemical business recorded an operating loss of RMB 2.4 billion, a decrease of about RMB 5.36 billion year-on-year, mainly due to the decrease in the sales and prices of chemical products. In the marketing segment, the company actively coped with the adverse effects of the COVID-19 situation and market downturn and optimized its product structure and inventory management.
In the first quarter of 2020, the sales of refined oil products reached about 35.5 million tons, down by 15.9% year-on-year, of which the sales of gasoline declined about 16.7%, the sales of kerosene declined about 20.8%, the sales of diesel declined about 14%. As a result of the outbreak of COVID-19, the decrease in demand for refined products on the domestic market. The marketing segment recorded an operating loss of CNY 16.59 billion, a decrease of CNY 20.11 billion year-on-year. As for the natural gas and pipeline segment, the segment realized operating profit of CNY 11.36 billion in the first quarter of 2020, a decrease of 9.7% year-on-year.
The net loss incurred from sales of imported gas and LNG amounting to CNY 3.9 billion, an increase of loss of CNY 644 million year-on-year, mainly due to the early implementation of off-season price policy and reduced natural gas sales prices. The company will continue to take effective measures to control losses. PetroChina demonstrated its commitment to corporate social responsibility and gave full support in the fight against COVID-19 outbreak. They made appropriate measures for epidemic prevention and control to resume work and production in an orderly manner. They supported the region severely impacted by COVID-19, including making donations to Hubei Province and allocation of oil and gas resources to secure a sufficient supply in the region. The refined oil marketing companies opened green lanes and convenient tracks to provide round-the-clock service and resources of all varieties.
The natural gas marketing companies donated natural gas to dozens of designated hospitals in Hubei Province. Leveraging the advantage on industries, skills, and talents, the refining companies repurposed their production lines to boost the manufacturing of medical protective equipment while conducting research and development and put into operation of medical necessities such as melt-blown fabrics and surgical masks. The company expressed resolute support in the fight against COVID-19. In the next three quarters of 2020, due to factors such as the downturn of the world economy, it is expected that the international crude oil markets will still be oversupplied, and the international oil price is expected to fluctuate at a low level. The company will highlight its key projects while constraining its non-major projects, insist on cost-cutting as well as enhancing efficiency, and adhere to the bottom-line thinking of adjusting expenses based on income.
We will adjust the annual business development and investment plan in a timely and dynamic manner according to changes in oil prices to optimize crude oil production and ensure sustained growth in natural gas production. We will also optimize the investment structure, improve the return on investment, and strictly control management costs and expenses to ensure the stable and orderly functioning of production and operation, as well as the healthy and sustainable financial situation, striving to create value for shareholders. We will endeavor to focus on strategic development in resources, marketing, internationalism, and innovation. We will be more devoted on low-carbon green energy development, focus more on digital transformation and intelligent development, and pay extra attention to value creation in order to actively respond to risks and challenges and strive to achieve a better performance in the year 2020.
This is the update for the first quarter financial and operational results. Now we will proceed to the Q&A session and welcome the first question. Operator, please.
Thank you. Ladies and gentlemen, should you like to raise a question, please press star one on your telephone keypad. Our first question comes from Neil from Bernstein. Please go ahead with your question. Thank you.
Well, thank you very much for the presentation. Just three questions, if I may. First of all, can you give us an update in terms of the CapEx plan for 2020 and how big a cut you think you're likely to make? Secondly, in terms of oil and gas production output, I'm just wondering if there's any new guidance that we have in terms of volumes on both crude and gas.
And then thirdly, just in terms of the marketing, you showed that we'd see marketing volumes fall by 15% in Q1. Can you give us the full marketing volumes just in China alone and what you're seeing in April in terms of volumes? Are we still seeing the significant decline year-on-year, or are we starting to see those marketing volumes recover? Thank you.
Thank you. This is Wei Fang. I'd like to take your first two questions. In regards to the CapEx and production guidance, one of the keywords you may find this year is price-driven mechanism. So we have initiated a capacity enhancement program and cost-cutting program. So it is estimated that by 2020, the CapEx for the whole company will be around CNY 200 billion, down by close to 30%.
In terms of production, the guidance is actually we will maintain the oil production according to the prices and the natural gas price production targeted to grow at an annual growth rate of around 5%. Yes, the production is. The third question will be answered by Zhu Tongnan. Thank you.
As for the marketing, adoption has raised the global marketing segment, where we suffered operating loss of CNY 16.5 billion, which is mainly caused by the demand contraction as well as the inventory loss. So the first quarter, we have an inventory loss in the marketing segment of CNY 3.4 billion. Since the collapse of the oil price and the oversupply situation of the market has even worsened, and this situation is further deteriorated by the negative impact from the COVID-19. And we know that the oversupply is a chronic issue for our marketing.
And currently, we do not know when the epidemic will be end. Although we see the situation in domestic China is under control, but the economy is slowing down, and it takes time to catch up for the consumption. And what's more, we also had an unfair competition environment in terms of the relevant tax policies. Now, this is a headache that we currently have no mercy on. And under such conditions, in the short term, such as China, we cannot predict a much improvement in our marketing segment.
Thank you.
Thank you. Our next question comes from Horace from Credit Suisse. Please go ahead with your question.
Thank you, management, for the presentation. Can you share what would be your outlook in terms of production and CapEx beyond 2020?
I mean, potentially, if oil prices recover to, let's say, $40 per barrel and above, would we kind of resume the production growth and CapEx deployment that we've seen in the past two, three years? Thank you.
Yeah, thank you, Horace. This is a very good question. So I have to reiterate my previous comment about price-driven mechanism. So under $40 price, I think we should be able to maintain the CapEx scale this year. So for production, probably we will be maintaining a growth momentum for natural gas at least 5%. Or for production of oil, I think it will probably maintain stable. But this is a very unprecedented situation that we have seen. So hopefully, next year, the price can be even higher, and then we will be able to accelerate our production for oil and gas.
But in terms of budget cost-cutting efforts, I think it's going to be continuing enforcement. What I can tell you is that currently, within the company, we have initiated a program that is due to execute a budget cut for each and every unit by 30%. And also, the management bonuses were cut by 50%. So this is very extreme measures, particularly to cope with the current situation. Hopefully, I think the situation will also be related to how the pandemic is contained. So I think at the moment, as I just said, that I get a sense today at lunchtime, it's warm. I get a sense that the pandemic is somewhat contained in China. So hopefully, if we have more good news from around the world on our common side against the pandemic, I think we will see that the gradual recovery of the economy and the demand.
So hopefully, price will be going up to a normal range. So as far as PetroChina is concerned, this is the time to do a big test for us. So I have to also steal a line from my colleagues in Daqing. Maybe you have heard of that. It's called Gan Mao Jin Ning Chu San Di Shui So that actually means that if you put your man into it, water can be drawn even from a dry towel. So this is the time for us to squeeze water out from the dry towel. Thank you.
Thank you.
Thank you. Our next question comes from Andy from Morgan Stanley. Please go ahead with your question.
Thank you very much for the presentation. I have two questions. The first question is on the natural gas business.
We understand you cut your selling price earlier because of the COVID-19, and this price will see this effectiveness until late June. Just wonder whether after June, we will see the price back to the normal level or we will continue to extend this practice. And also, on the cost side, I think when the global oil price going down, gas price going down, our import cost on the gas will also decline. So when we see the selling price and the import cost both moving, how should we think about the profit margin trend in second quarter or third quarter of this year? So this is my first question. The second question is on the refinery and the chemical. We see the loss in the first quarter.
We just want to know whether we have an estimate or calculate number regarding the inventory loss for both refinery and the chemical segment. So if we have that number, we can exclude this one-off loss and see what will be the recurring profit status for these two divisions. Thank you.
Thank you. This first question will be answered by Mr. Brian Chong, and the second question will be answered by Mr. Sun Bo.
Okay. Thank you, Mr. Wei. This is Brian. I will answer Andy's first question regarding the natural gas. Firstly, about the natural gas price early off-season arrangement by the government, this will be ended by the end of June, as you mentioned, and after that, I think the natural gas price will be based on a demand-supply balance kind of divided kind of pricing, and we will see how the demand goes.
If the demand is strong, we may see a different kind of arrangement for the price, and as for the natural gas import cost, as you mentioned, yes, it is correct. The import cost is linked with oil price. With current low oil price environment, in the second quarter, we may see some lowering cost on import of natural gas, and with no changes on the sales price, then the profit margin or the loss on procurement meter for the import will be lowered. Thank you.
Okay, then I will ask your second question. For the inventory loss, the total number of the company in the first quarter is CNY 7.8 billion. It should be noted that it's a total number of the whole company because we don't have the separate segment number in the quarter results.
In the future, as you can see, the oil price has shown a very fluctuation. So the company will, according to the requirement of the accounting criteria, do the impairment test for the assets. We hope that the oil price can be recovered. In the second or third quarter, there will be no more inventory loss. It should be noted that it's up to the oil price. Okay. Thank you for your question.
Thank you very much.
Thank you. Once again, ladies and gentlemen, as a reminder, should you have a question to raise, please press star one on your telephone keypad. Our next question comes from Lawrence from BOCI. Please go ahead.
Hi. Thank you. Just a couple of questions. First of all, I think Mr. Wei talked about the oil production is based on the oil price linked mechanism.
I just wonder, do we have any—and you also talked about cost-cutting. I just wonder, do we have any target in terms of oil production that to which level you want to cut the oil production cost, say, all-in cost or cash cost to a certain level by this year? And also, with oil price falling a lot after first quarter, are you already cutting down your output, or are you actually planning to cut output already? Thank you.
Thank you, Lawrence. As I just mentioned, it's a time for the company to increase efficiency under the same conditions. So I have to go back to my previous comment about price-driven. So we are by 30% of cost-cutting. So I think I'm maintaining the production. So I think we will try to achieve a break-even for the E&P at $40 price scenario.
If currently there's no further guidance, there won't be a clear guidance for production target for this year because the situation is very unprecedented because we've seen a sharp decline of oil prices. So I think maybe the first half results, hopefully, you will get some further guidance by then. At the moment, is that the price-driven mechanism is applied for the E&P.
Okay. Thank you.
Thank you. Our next question comes from Leifu from JP Morgan. Please go ahead.
Thank you, management. I have two questions. The first is following Andy's questions. So we've seen the inventory loss have been impaired significantly in one year. My question would be, what inventory cost that reflects the current impairment? Let's say the ending price of Brent by March, it was $23 per barrel.
Did we fully impair all the inventories to that level, or what price were used to impair the inventory? That's my first question. The second question is, so we've all seen the cash flow challenge in first quarter owing to the COVID-19 impact. Should we expect the cash flow to quickly recover in second quarter? And in that case, what dividend level we should expect for the full year? Thank you.
And Madam, you will answer your question. [Foreign language] Thank you. [Foreign language] So first quarter, our inventory loss raised the impairment. Impairment raised the RMB 7.9 billion. And since PetroChina is an upstream heavy company, most of our impairment will happen in our upstream, that is the trading oil, and also in our downstream, the marketing, also for the trading business.
[Foreign language] Calculate the accrued oil price is yet to be stabilized, and we will take consideration of the internal and external operating environment, as well as the change of oil prices. We'll do the impairment testing based on the accounting standards.
Yeah. Thank you.
As for the dividend payout policy, we will take flexible measures, and we will adhere to 45% of our net profit for the dividend payout. We will still stick to that.
I guess I would like to add that in the previous years, under extreme conditions, particularly when it comes to low oil prices, the company has these measures to pay special dividends. I think this can be also considered maybe in the first half. That's the answer.
Thank you.
Thank you.
Thank you.
Once again, ladies and gentlemen, should you like to raise a question, please press star one. Once again, ladies and gentlemen, star one key for questions. And our next question comes from Wang Peijian from CITIC. Please go ahead with your question.
[Foreign language]
For the first quarter, our realized oil price was $54 per barrel, compared with $59 per barrel last year, a slight drop. And excluding the impact from the depreciation of RMB, the level is similar to last year. And we also see an increase in the sales volume in the first quarter. So all of this contributed to roughly good performance of our upstream for the first quarter. And from February, PetroChina issued a campaign of improving our quality as well as the efficiency of our operations.
We initiated the renegotiating of the contracts with our service providers and third parties and tried to overcome the difficulties together with our partners. We're happy to see the decrease in our lifting costs in the first quarter. We believe in the second quarter, the lifting costs will continue declining. But as for the profit in the second quarter, we suggest you attend the other two companies' release, and maybe they have a better say in the profit in the second quarter.
[Foreign language] As for the processing load for the refining sector, for the first quarter, the processing load is roughly around 75%, and we expect this number to climb into 80% in the second quarter. In the first quarter, under the overall supply situation in the refining market, we adjusted our production mix.
For the refining and the chemicals, we produce more chemical products that is more market-oriented, more needed. For example, the medical purpose used polypropylene, and for polypropylene, the production volume increased by 15.2% in the first quarter. We also increased the production of diesel and the bitumen. As for the bitumen, currently we take the biggest market share in domestic China, which is roughly around 30%. We're also happy to see that the diesel to gasoline ratio has already been increased from the normal 1.04 to 1.31 in April.
Okay. Thank you. Thank you. I don't see any further questions. If that is the case, let me wrap up today's conference call. So I think we all suffered from setbacks in recent days with the lockdown with the falling economy, but I do see a growing impulse from China's recent successful containment of the outbreak of COVID-19. Let me end today's conference call by quoting a famous line by Li Bai, written like this: [Foreign language] In English, it means that waves and wind will always be there. We are ready to splash and sail. Here, on behalf of my team at PetroChina, we wish you all stay safe, stay healthy, stay prosperous. Hope to see you soon in Hong Kong, Shanghai, Shenzhen, and Beijing. Thank you.
Ladies and gentlemen, this concludes the analyst conference call today.
If you have any further inquiries, please feel free to send your questions to PetroChina Investor Relations via email at hko@petrochina.com.hk, hko@petrochina.com.hk. Thank you again for joining us today. Appreciate it. This concludes this conference call today. Thank you.
Thank you. And that concludes today's call. You may now disconnect. Goodbye.