Ladies and gentlemen, good afternoon. I'm Wang Hua, CFO and Board Secretary of PetroChina. Here on be of the company, I would like to welcome you to our 2022 Q3 earnings call. First, allow me to introduce attendees from our Beijing headquarters. Mr. Huang Yongzhang, Executive Director and President of the company. Ms. Mu Xiuping, Director General of our Finance Department. Mr. Li Qiang, Deputy Director General of our International Department. Ms. Pei Ying, Deputy Director General of the Board Office. Ms. Liu Wentao, Deputy Director General of our Planning Department. Mr. Song Wenguo, Deputy Director General of our Production and Operation Management Department. Ms. Zhou Guofeng, Deputy Director General of our Law and Corporate Reform Department. Mr. Liang Gang, Deputy Chief Economist of our Board Office. Today's earnings call will include three parts. First, opening address of our president, Mr. Huang Yongzhang.
Second, briefing of our Q3 performance, followed by a Q&A session. Now we're moving to the first part, opening address of our Executive Director and President, Mr. Huang Yongzhang. Please.
Dear shareholders and investors, good afternoon. I'm more than delighted to join you online. First of all, on behalf of the board, management, and all staff, I would like to thank you very much for your long-term support and attention.
This year, faced with hardships and challenges, PetroChina have always maintained strategic focus and followed the deployment of our board of directors. We coordinated between cooperation and management as well as reform and innovation, continued to optimize oil and gas industry chains, and our profitability continued to increase. Revenue, net profit attributable to parent, free cash flow, and many other operational indicators saw large increase, and our performance recorded another historical best.
All major tasks have seen new headwinds and new success. First, we continue to step up E&P efforts and maintained a sound momentum in production and reserve ramp-up. We secured 17 important discoveries and 31 major progress in Sichuan, Tarim, Ordos, and Junggar basins. We have achieved steady crude output with increase and rapid growth of natural gas domestically. For overseas operations, we further optimized layout and portfolio. Major projects saw smooth progress.
Second, we further carried out the structuring and upgrading of our refining and chemical business and worked hard to cut fuel and increase chemicals and specialty products. Our key projects like Guangdong Petrochemical Complex and Jilin Ethylene Plant, all saw new progress. Our product mix continued to optimize.
We've stayed market-oriented and profit-centered to carry out improvement in terms of our crude resource allocation to make appropriate arrangement in terms of run rate and further cap our costs and expenditures.
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Third, we further worked on fine management and improved our marketing. Refined product sales overcame challenges like declines in market demand and further improved customer service to expand sales. Our market share saw steady increase. In terms of natural gas marketing, we optimized resource structure to contain procurement costs and improved marketing strategy and resource allocation to maintain a balance between guaranteeing supply and profitability.
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Fourth, we made further efforts in green and low-carbon transition. We have worked on major integrated bases with wind, solar, gas, and energy storage, as well as the six major bases and five major projects of new energy and new materials endeavors. We have made active efforts to develop clean energy and power markets in areas with abundant wind, solar, and geothermal resources. We have also launched a batch of new energy and new materials projects. More than 10 projects have been completed and brought online. For example, the floating PV demonstration base in Daqing Oil Field.
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Fifth, we continue to enhance R&D and work on the building of original technology incubator to enhance basic research and applied research. We have accelerated the campaign to break technical bottlenecks in terms of core technologies so as to build a world-class innovative enterprise and provide support and guidance for business development.
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Sixth, further efforts in quality and efficiency improvement will continue to improve the value creation capability of our oil and gas industry chains. We stick to the principle of disciplined, targeted, and cost-effective investment to cap the overall amount of investment and improve investment management based on macro environment as well as the realities in our production and operation. The board of PetroChina has deliberated and approved the adjustment of our business development and investment plan, which will further consolidate the resource base of future production and reserve ramp-up, and proceed the refining and chemical sector upgrading and transformation, and also to speed up the business development in terms of new energy and new materials.
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For the next step, PetroChina will closely follow domestic and international situations, as well as the market dynamics in the oil and gas market, and changes in interest rate and exchange rate to optimize the organization of our production and management, deepen quality and efficiency improvement, as well as reform and innovation to fend off risk in our business operations and achieve the annual production and operation targets so as to create more value for our shareholders and the society at large. Thank you.
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Thank you, Mr. Huang. Now we'll move on to the second item. We'll have our securities representative and deputy chief economist of the Board Office, Mr. Liang Gang, to introduce the Q3 performance. At the same time on the English line, we'll have Mr. Xing Chong from Hong Kong Representative Office to introduce the performance in English.
Good afternoon, ladies and gentlemen. I'll give you a brief introduction of PetroChina 2022 third quarter results. In the first three quarters, world economy continued to grow slowly due to geopolitical tensions, inflation, rate hikes in the U.S. and Europe, and recurrent COVID-19 epidemic. The tight supply and demand balance of the international crude oil market led to a spike in crude oil prices. China's macro economy gradually recovered. Domestic refined oil demand declined due to sporadic epidemic outbreaks in some regions. The company implemented a new development philosophy and high-quality development requirements, pursued progress while ensuring stability, complied with laws and regulations. We overcame challenges and coordinated epidemic prevention and control, production operation, reform and development, vigorously expanded our exploration and development, and ensured stable oil and gas supply. Through persistent efforts to enhance the development quality and efficiency, we continuously improved our value creation capability.
In accordance with IFRS, for the first three quarters, the company continued to deliver record financial results for the same period. Revenue was CNY 2.4 trillion, up 30.6%. Operating profit was CNY 175 billion, up 40.2%. Net profit attributable to owners of the company was CNY 120 billion, up 60.1%. Basic EPS CNY 0.66, up CNY 0.25. In the third quarter, revenue was CNY 841 billion, up 23%. Profit from operations was CNY 55.8 billion, up 53.8%. Net profit attributable to owners of the company was CNY 37.9 billion, up 71.5%. Basic EPS CNY 0.21, up CNY 0.09 year on year. The following is the operating performance of each business.
For the oil, gas, and new energy business, the company vigorously strengthened exploration and development, actively expanded production capacity, and strived to increase reserves and production. We continued to optimize the layout and asset structure of overseas oil and gas exploration and firmly promoted the new energy business. We attached equal importance to production and profitability and continuously enhanced cost control. In the first three quarters, crude oil output reached 677 million barrels, with domestic output 177 million barrels up 2.7%. The marketable natural gas output was 3.4 TCF, with domestic output of 3.3 TCF, up 5.1%. Oil and gas equivalent output was 1.25 billion barrels, with domestic output of 1.13 billion barrels up 3.9%.
Oil and gas lifting cost was $11.7 a barrel, up 3.3%, mainly due to the increase in operating costs such as fuel and power costs. In the first three quarters, the sector achieved operating profit of CNY 139 billion, significantly up 138% or CNY 80.6 billion. In the third quarter, crude oil output reached 225 million barrels, with domestic output of 189 million barrels up 1.3%. Marketable natural gas output reached 1.1 TCF, with domestic output of 1 TCF up 6.7%. Oil and gas equivalent output reached 406 million barrels, with domestic output of 363 million barrels up 3.8%.
In the third quarter, the sector recorded an operating profit of CNY 56.5 billion, significantly up 105.4% year-on-year. For the refining chemicals and new materials business, the company adhered to market-oriented approach, enhanced coordination between production and sales, and actively controlled and reduced crude oil processing volume. We focused on lowering refined products and increasing chemicals outputs, with the product structure further optimized. We also enhance R&D efforts and establish new materials research institute in Japan, and the output of new materials has simply increased. In the first three quarters, processing volume was 896 million barrels, down 1.8%.
Production of refined oil products was 75.75 million barrels, down 4.8%, of which gasoline down 12.4%, kerosene down 32.9%, and diesel up 10.9%. Production of chemical products was 23.5 million tons, up 3.5%. Production of ethylene was 5.5 million tons, up 15.6%. In the first three quarters, the sector recorded an operating profit of CNY 26.4 billion, down 17.6% or CNY 5.6 billion. Operating profit of refining was CNY 26.6 billion, up 32.1% or CNY 6.5 billion. Due to higher raw material cost, operating loss of chemicals was CNY 221 million. In the third quarter, processing volume was 298 million barrels, down 2.5%.
Production of refined oil products was 26 million tons, down 1.8%, of which gasoline down 11.5%, kerosene down 15.3%, and diesel up 11.9%. Production of chemical products was 7.5 million tons, down 5.4%, and production of ethylene was 1.7 million tons, up 1.3%. In the third quarter, the whole sector recorded an operating profit of CNY 2.3 billion, down 76.5%. The operating profit of refining was CNY 2.6 billion, down 60.9%, and the operating loss of chemicals was CNY 309 million, mainly due to the raw materials cost increase. As for the marketing business, the company strive to overcome the adverse impacts from resurgence of the pandemic and lower market demand for refined oil products.
We strive to expand sales volume and further optimize inventory management. We coordinated the development of international and domestic markets, further enhance the profitability of international trade, actively develop the integrated stations of oil, gas, hydrogen, electricity, and non-oil business, and strive to create new profit growth drivers. In the first three quarters, the company sold 110 million tons of refined oil products, down 10.5%. Domestic sales of refined oil products was 79.4 million tons, down 5.6%. The sales of diesel up 9.8%, gasoline down 13.5%, and the kerosene down 38.9%. In the first three quarters, the sector recorded an operating profit of CNY 7.2 billion, down 17.5%.
In the third quarter, the company sold 39.3 million tons of refined oil products, down 9.3%. Domestic sales volume of refined oil products was 29.1 million tons, down 4.8%. Of which the sales of diesel up 9.1%, gasoline down 16.3%, and kerosene down 23.4%. In the third quarter, the whole sector recorded an operating loss of CNY 1.28 billion. As for natural gas marketing business, the company actively addressed the impact of rising imported gas costs, optimized its resource structure, strictly controlled the procurement costs, attached great importance to precise marketing, expanded the scale of online sales, actively expanded the retail end-user market, and vigorously enhanced the profitability.
In the first three quarters, the company sold 189.5 BCM of natural gas, down 4.7%, of which domestic sales of natural gas was 147.2 BCM, up 6.6% year-on-year. In the first three quarters, due to the rising procurement costs of imported gas, the natural gas marketing business recorded an operating profit of CNY 15.6 billion, down 15% year-on-year, if excluded impact of pipeline restructuring from Kunlun Energy last year. In the third quarter, the company sold 59 BCM of natural gas, down 8.5%. Domestic sales of natural gas was 43.5 BCM, up 3.9%. In the third quarter, the whole sector recorded operating profit of CNY 2 billion, up CNY 2.2 billion.
The above are the company's overall operating targets for 2022, and the progress made in the first three quarters for your reference. That's the third quarter report. Thank you.
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Thank you, Mr. Liang. Now we'll move on to the Q&A session. The Q&A session will have Chinese and English consecutive interpreting. To give more people the chance to ask, each please raise no more than two questions, and please first inform your name and the institution you represent. Now the floor is open for questions. Please.
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Ladies and gentlemen, if you would like to ask any questions, please press star one on the telephone keypad. Press star followed by one. Thank you.
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The first question is Zhao Naidi from Everbright Securities. Please go ahead.
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With Everbright Securities, I would like to thank the management for giving me the chance to ask, and I have two questions. First, entering 2022, there is the RMB depreciation as well as the Ukrainian crisis. All these add to the already complex international energy landscape, and a lot of oil companies are feeling the impact already. I wonder how will these factors affect the operation and management of PetroChina, and what is your measures to respond? My second question is regarding the performance of the company that we pay close attention to. We see in terms of the Q3 net profit attributable to parent, there is a large increase year-on-year and a slight decline quarter-on-quarter. I wonder the reason behind that and what is your outlook regarding the full-year profitability? Thank you.
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Thank you, Mr. Zhao. Mr. Song Wenguo from our Production and Operation Management Department is taking the question.
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This year, we have seen a lot of unexpected changes in macro environment at home and overseas. The international landscape has become more complex and severe, with very high and volatile international oil prices.
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The global natural gas supply and demand landscape is seeing profound adjustment and spot LNG prices remain high.
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The Federal Reserve has increased interest rate by a total of 300 basis points by now, and U.S. dollar index has exceeded 114 at some point, which is a new high in the past 20 years, and it has caused fluctuations in the international financial markets. The interest hike of U.S. dollar and depreciation of RMB has hiked the financing cost in foreign currency of the company.
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Such a change has also added to our imported oil and gas costs and exchange losses. However, our revenue and profitability in terms of operations settled in U.S. dollars has also increased.
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Faced with difficulties and challenges, PetroChina has strengthened our analysis of market volatilities and made our precautions and measures in advance to guarantee the stable supply of domestic oil and gas resources.
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First, in terms of improving the quality of our resources and our capabilities to guarantee supply. First, we speed up the production and reserve ramp-up domestically. We carried out efficient explorations, enhanced the production stabilization in mature oil fields, and speed up the cost-effective capacity building in new ones. In this way, we can work on the capacity building in terms of domestic oil and gas production, and achieve steady with increased oil output and rapid growth of natural gas.
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Second, we strengthened the operation and development of overseas oil and gas resources to improve our return on investment.
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Third, we optimized the resource pool of imported gas, enhanced communications with overseas suppliers to guarantee the stable supply of imported pipeline natural gas.
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Fourth, we continue to work on the capacity building in gas storage and peak shaving. All gas storage facilities have been injected to the maximum capacity and preparing for supply guarantee in winter season.
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In terms of R&C restructuring and improvement, as well as working on marketing quality, first, we stay market-oriented and enhance the coordination between production and marketing to improve the resource allocation of our crude resources. We made appropriate arrangement of run rate to drive down the inventory of crude and refined oil products.
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Second, we further optimized our product mix, went through steam to cut fuels and increase chemicals and specialty products to expedite the transformation and upgrading of our R&C.
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Third, we closely followed the demand of our customers and market dynamics to optimize the production and marketing rhythm of Refining and Chemical products to balance between market development and improvement in volume and profitability.
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Fourth, we made active efforts to optimize the resource structure of natural gas and contain procurement cost. We focused on precision marketing, expanded online sales to add end user retail markets and improve profitability in this regard.
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In terms of fending off various types of risk, we closely follow international events and dynamics in oil and gas markets, exchange rate and interest rate. We prudently utilized financial derivatives to reduce risk exposure in terms of exchange rate and prices to contain all types of operational risk.
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Thank you.
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Thank you. The second question Mr. Wang Hua, our CFO and Board Secretary, is taking this question.
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In Q3 PetroChina seized the opportunities of recovery in macro economy and rebound in oil and gas demand, as well as the rather high level of international oil prices, deepened our campaign to improve quality and efficiency. Worked very hard to contain the cost and expenditure and achieved very smooth operation of our oil and gas industry chains.
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Which means that our value creation capabilities is also growing. We have seen a net profit attributable to parent totaling CNY 37.88 billion, up by 71.5% year-on-year. Which means that in H1 , we have achieved a historical best interim results. The first three quarters also see historical best in terms of performance.
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As for quarter-over-quarter, there has been a decline of 12.6%, mainly due to the prices of oil and gas products.
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We can see that in July, August, and September, international oil prices recorded a decline in three consecutive months.
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As for the realized oil prices of PetroChina, there has been a rather large decline Q3 on Q2.
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As for refined oil products in the three months of the third quarter, according to the national pricing policies, there has been 5 declines and 1 increase, which totals about CNY 1,100 per ton decline for both gasoline and diesel.
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Besides the sales prices, there has also been rising costs of some fuel, power and materials. All these factors contributed to the decline of quarter-on-quarter performance.
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As for Q4, we expect that Chinese economy will back on the track of steady and sound growth. Actually, according to the National Bureau of Statistics in Q3, it is already showing the trend. The January to September GDP growth was 3%. That is already half a percentage point better than the H1 statistics.
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In Q4, we expect that refined oil product and natural gas will both see very sound prices year-on-year.
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The company will continue to improve our oil and gas industry chains operations and deepen the campaign of quality and efficiency improvement, enhance our cost control on various fronts to achieve our annual targets and create greater value for our shareholders. Thank you.
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The next question is Horace Xie from Credit Suisse. Please go ahead.
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The questions regarding Q3 import gas and profitability as well as the tax refund. Can the management shed some light on these figures and also about the heating season pricing mechanism of the natural gas? Mr. Wang Hua is taking the both questions.
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In Q3, the total natural gas imports 20.94 BCM with a loss of CNY 8.92 billion and tax refund CNY 3.52 billion.
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Since the pipeline natural gas import is indexed to international oil prices 9-12 months back with the increase of international oil prices, there is a hike in the import natural gas cost. However, the city gate prices, according to the government policy, remain unchanged. Therefore, that is contributing to the loss-making in import natural gas business.
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As for the full year outlook, we believe that in Q4 the natural gas consumption is going to increase. However, the international gas prices, especially the spot LNG, they are both seeing a lot of volatility.
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We will work on both the resource end and the market end to cap the losses in import natural gas business and to improve the profitability in this industrys chain.
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On the resource end, of course, we'll continue to boost reserve and production of natural gas domestically. Just now our presentation has shown that in the first three quarters, the natural gas production within China increased by 5.1%.
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Second, we will procure natural gas resources from diverse channels to reduce the cost. We are also going to use some hedging tools to mitigate the risk of rising costs and contain such losses.
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As for the marketing end, there are also mainly two fronts to work on. First, we will favor high-end and lucrative markets with more resource.
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Second, we can employ measures like online auctions to discover the real prices of natural gas and to improve value in this way.
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Overall speaking, we will work on many fronts, both on the resource end and the marketing end, to strike a balance between guarantee supply and guarantee profitability.
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As for your second question regarding the realized gas prices. PetroChina has always adhered strictly to the natural gas pricing policy of the government.
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This winter, PetroChina will further enhance our analysis of market supply and demand landscape to make appropriate natural gas marketing strategy accordingly. Besides guaranteeing stable supply, we'll also work on the efficiency and profitability.
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Thank you.
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The next question is Shi Zheheng from Citibank. Please go ahead.
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I have two questions. First is regarding the R&C sector. In Q3, we see a notable decline in terms of performance in this sector. I wonder what is your outlook about Q4? My second question is regarding export quota. A while ago, we see that there has been news about the government releasing some export quota. However, there is also saying that in November, some of the diesel export quota will be canceled due to the tight supply of diesel in domestic market. Can the management confirm this-these speculations?
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Ms. Mu Xiuping from our finance department is taking our first question and Mr. Song from our production and operation management department is taking your second.
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The refining sector has seen a quarter-on-quarter profitability decline of CNY 10 billion, mainly due to the following reasons.
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Just as Mr. Wang Hua mentioned, the crude prices in the three months of Q3 has seen three consecutive declines, down by $6 per barrel, and that caused the narrowing gross margin of gasoline and diesel.
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Second, there is the COVID situation domestically and a lower consumption in the domestic market, and that has caused a lower production of our gasoline.
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As for our chemical operations in Q3, there has been loss making and mainly due to the price changes of feedstock.
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Also in the market, there are lower prices of the products that contribute to the narrowing of gross margin.
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In the marketing operations, there have been similar factors. Due to the COVID-19 resurgence, we see a weak demand in the refined oil market and gasoline and diesel prices.
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Faced with such market realities, the company improved operations, restructured its business, and capped the cost of production to ensure the smooth operation of oil and gas industry chains.
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In Q4, we expect that the state government will deliver stronger stimulus package in terms of economic policies and domestic demand will recover. Therefore, we estimate that in Q4, the refining and chemical sector will see better performance and profit.
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As for our marketing operations, we will seize the opportunities of recovery in market consumption and state policies to straighten out the refined oil product market, and we believe that we will turn a profit in the fourth quarter. Thank you.
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Mr. Song is taking your second question.
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A while ago, the state policy has added export quota of 15 million tons.
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For PetroChina, there is an increase of export quota totaling 4.95 million tons.
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Export of refined oil products were meant to adjust the supply and demand landscape within China.
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This year, due to COVID-19 resurgence, the sales of gasoline and aviation kerosene were weaker than expected.
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Therefore, we arranged slightly higher export of gasoline and aviation kerosene.
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As for diesel, it's supposed to first satisfy domestic demand, and diesel prices has been fully hyped as well, as the policies shall allow.
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Due to the economic recovery in China, there is a rather sound booming demand for diesel in China, but we can fully satisfy the demand with our supply. Actually, compared to the beginning of the year, our diesel inventory is actually higher right now.
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As for the next step, if diesel demand continue to increase, we will have measures to respond and adapt to the new situation. For now, our run rate hasn't fully reached the original capacity, and we do have the potential to increase our processing volume and add production in this regard.
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We can also adjust our product mix.
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We can also adjust the product mix in terms of chemicals or fuels. A while ago there was this booming demand of chemicals. We reduce the yield of gasoline and increase diesel in turn.
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As for guaranteed supply, we can fully provide the supply to our existing market share and you can rest assured. Thank you.
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Thank you for the answer. Now in the interest of time, we can have the last questioner please.
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The last questioner is Hu Xin from Haitong Securities. Please go ahead.
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I have two questions. First, given the changes in the oil and gas market with high oil prices, energy transition and COVID-19 resurgence, how will PetroChina adjust its various operations? For example, its CapEx? How do you plan to allocate CapEx between oil and gas business and new energy investment? My second question is about your green and low carbon transition and some of your latest progress in terms of new energy business.
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Thank you for your question. Now Ms. Liu Wentao from our planning department is taking both your questions.
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Thank you for the question. We have already made adjustment to our investment plan and now our plan is higher than the beginning of the year and the CapEx plan is also higher than previous years. First in terms of E&P, we have allocated more investment into the exploration of resource will be higher than previous years, and it will help to consolidate resource base. They are also seeing very good results. Second, we are also working on capacity building.
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In terms of production, we believe that oil and gas will both be higher than planned earlier this year.
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In the H2 of the year, we are also making preparations for production ramp up and capacity building projects of next year.
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Refining and Chemicals sector, we are still working on the transformation and upgrading campaign. We have already launched the Guangdong Petrochemical Complex and Jilin ethylene project. We are also planning for the Guangxi ethylene project as well as two other ethane to ethylene projects.
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As for the allocation of investment, oil and gas and new energy will account for about 75%, refining and chemicals 15%, and the marketing of oil and gas about 7%-8%.
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In terms of exploration, we have put more focus on natural gas. In terms of development, it's about 50-50 between oil and gas. The proportion of natural gas has increased by 10%-15% compared to previous years. As for your second question regarding growth in low-carbon transition, the company has accelerated its pace in this regard. We have put in tremendous efforts to secure wind and solar resources, and we are seeing very good results. As for the specific implementation and delivery of these projects, the company is taking a very prudent manner.
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For wind and solar, we are still at the stage of clean alternatives, and we are focusing on projects in western and eastern China, where the grid connection has enough capacity to accommodate these new energy power.
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Our first at scale photovoltaic project in Yumen has recorded a total of CNY 30 million in terms of profits from Q1 to Q3 this year. PetroChina is also working on geothermal resource development in the Bohai Bay area, and we have been working on the CCUS full industry chain demonstration basis in northwestern China and northeastern China. Our target is to carry out carbon dioxide sequestration of over 1 million tons this year.
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For now, the demonstration basis mainly focus on the reserve of technologies and its further implementation and expansion will be based on the carbon taxing policies of the government.
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For hydrogen energy, PetroChina mainly eyes the technical reserve. In the next few years, PetroChina will further increase investment into green and low carbon undertaking to expedite our transition. Thank you.
Thank you for the answer. I believe that concludes our earnings call today.
If you have further questions, you are more than welcome to post to our investor inbox, and I look forward to meeting you again. Thank you.