There are plenty of energy companies around the world that are partially owned by national governments, but the influence that those governments have can vary considerably. Statoil (NYSE:STO) and Total (NYSE:TOT) encounter relatively little direct interference, while the involvement of Brazil's government in the operations of Petroleo Brasileiro (NYSE:PBR) is considerably greater.
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Even further along the spectrum sits China's PetroChina (NYSE:PTR). Although PetroChina is one of the world's largest oil companies and generally well-regarded for its corporate governance, there are no illusions about the extent to which the Chinese government calls the shots. The question for investors, then, is whether that constant "management" (or interference, depending upon your perspective) strips away from the value of this company's stock.
Familiar Challenges in E&P
While PetroChina may be large and well-heeled, it has many of the same problems as other large oil and gas companies - namely, keeping production growth growing. While the company managed to boost volume by mid-single digits in 2011, a lot of this production came from higher-cost wells and the company is likely looking at lower production growth in 2012.
PetroChina's tactics for dealing with this problem are also familiar. While China's international pull has delivered some deals in Central Asia and Africa, PetroChina has tried to supplement its growth through deals. PetroChina supposedly considered buying XTO Energy ((before Exxon Mobil (NYSE:XOM) made the deal)) and had some much-publicized troubles coming to terms with Encana (NYSE:ECA) on what would have been a large joint venture in Canada. For more information on mergers and acquisitions, see The Basics Of Mergers And Acquisitions.
Amidst these setbacks, there have been some successes. PetroChina did seal a large deal for Canadian oil sands assets and has acquired some Canadian shale gas assets from Royal Dutch Shell (NYSE:RDS.A). Nevertheless, PetroChina has been relatively lead-footed when compared to rivals like BHP BILLITON (NYSE:BHP) or Statoil, as well as other Chinese energy companies like Sinopec (NYSE:SHI) and CNOOC (NYSE:CEO), in acquiring North American assets. Sooner or later this is going to cost the company.
The Government Giveth ... This Time
While long-term reserve and production growth is a long-term issue, recent actions by the Chinese government have more clear and present impacts. China's National Development and Reform Commission boosted gasoline and diesel prices by more than 6% in March. This should substantially cut PetroChina's expected refining losses in 2012, and though it will have a greater impact on Sinopec than PetroChina, it's still a positive all the same.
China has also adjusted its windfall taxes (raising the starting level and maximum threshold) and this could boost reported earnings by more than 10% at PetroChina. The Chinese government has also decided to phase in a new pricing formula that links the price of natural gas to oil, and this will be a favorable development for PetroChina as that takes hold across the country.
All of these moves are favorable for PetroChina and will boost its probable earnings in 2012, but they're a decidedly mixed blessing. What the Chinese government gives, it can take back and the Chinese government has to walk a fine line between controlling inflation, fostering sustainable economic growth and keeping its energy sector reasonably healthy. That's a shaky foundation for PetroChina shares; the Chinese government isn't going to snuff the golden goose, but it will pluck it from time to time as needed. For more information, see The Importance Of Inflation And GDP.
The Bottom Line
There's a wide spread on analyst expectations and market sentiment on PetroChina shares, with an almost 100% difference between the high and low target prices. Using a fairly standard six times multiple on 2012 estimated EBITDA, fair value for these shares appears to be in the $150's, which is a relatively low expected return even with the decent dividend.
Even if these shares were much cheaper, though, I'm not sure I'd bother. No energy company operates independently of national governments ((as BP (NYSE:BP)) certainly proves), but the growth prospects and relative valuation just look better with other companies like Petrobras, Eni (NYSE:E) and Statoil.
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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.