HONG KONG/BEIJING - PetroChina Co, Asia's biggest company by market value, will benefit from higher oil and gas production this year as government controls on diesel and gasoline prices lead to refining losses, analysts said.

The Beijing-based company said on Wednesday that first-quarter profit rose 14 percent from a year earlier to 37 billion yuan ($5.7 billion). The earnings missed the median forecast of 38.4 billion yuan in a Bloomberg survey of five analysts, after fuel price increases lagged behind crude oil costs.

"The upstream business is the real driver for PetroChina earnings, and it will have a better year than 2010," said Neil Beveridge, a Hong Kong-based senior oil-and-gas analyst at brokerage Sanford C. Bernstein & Co Inc. "PetroChina really was hurt by refining losses."

Refining losses reached 6.1 billion yuan in the first three months after the government raised fuel prices by less than 6 percent while New York crude was on average 20 percent higher from a year earlier. That was offset by increased production of oil and natural gas, which is set to rise after PetroChina made its biggest overseas acquisition.

The shares fell as much as 1.6 percent to HK$11.42 ($1.50) at 9:37 am in Hong Kong trading on Thursday, while the Hang Seng Index gained 0.7 percent. The stock is up 28 percent in the past 12 months, compared with a 15 percent gain in the benchmark. The Shanghai-listed shares were little changed on Thursday.

Rival CNOOC rises

Shares in rival CNOOC Ltd, which doesn't have refining operations, climbed 0.5 percent to HK$19.70 in Hong Kong on Thursday. The company said on Wednesday that first-quarter revenue rose 59 percent to 48.5 billion yuan. It didn't report profit figures.

Net income at PetroChina may climb 20 percent to 166.9 billion yuan in 2011, according to a mean estimate of 17 analysts compiled by Bloomberg.

The government is allowed to adjust oil-product prices when crude costs change more than 4 percent over 22 working days. China last raised gasoline and diesel prices by as much as 5.8 percent on April 7, its second increase this year, after crude hit a 30-month high.

Exploration and production accounted for 78 percent of PetroChina's 2010 operating income and refining and marketing had a 12 percent share.

Chinese demand

First-quarter crude output rose 4.3 percent from a year earlier to 219 million barrels and natural gas production climbed 7.1 percent to 18.1 cubic meters, PetroChina said in its earnings statement.

Oil refining gained 16 percent to 250.1 million barrels in the first quarter. PetroChina is planning to increase fuel output to meet demand from farmers and help supply the world's biggest car market.

China's economy expanded 9.7 percent in the first three months, beating a median forecast in a Bloomberg survey of economists for growth of 9.4 percent. The country's fuel demand may rise 8 percent this year, the National Energy Administration said on April 22.

Bloomberg News

(China Daily 04/29/2011 page13)