PetroChina Co., the world’s second- largest company by market value, posted its first drop in full- year profit since 2001 after refining losses widened fourfold and crude oil prices slumped.

Net income fell 22 percent to 114 billion yuan ($16.7 billion), or 0.63 yuan a share in 2008, Beijing-based PetroChina said in a statement to Hong Kong’s stock exchange today. That’s lower than the 116 billion yuan median estimate in a Bloomberg survey of analysts. Sales rose 28 percent to 1.1 trillion yuan.

China’s biggest oil producer and second-largest refiner incurred 83 billion yuan in refining losses last year because government curbs on fuel prices prevented it from passing on higher costs to customers. PetroChina said today it may face “severe challenges” and “huge difficulties” in 2009 as the global financial crisis hurts economic growth and oil demand.

“The company’s profit may extend its decline this year,” Wang Jing, chief oil analyst at Orient Securities Ltd., said by telephone in Shanghai. “Earnings prospects will rely on oil prices in general.”

PetroChina joins BP Plc and Royal Dutch Shell Plc in reporting lower earnings after crude oil ended the year 70 percent lower than a record in July. While futures in New York have gained 19 percent this year, prices are 48 percent lower than a year earlier.

PetroChina’s shares have declined 34 percent in a year in Hong Kong, compared with a 39 percent drop in the Hang Seng Index. Exxon Mobil Corp, the world’s most valuable company, has fallen 19 percent in the same period. PetroChina fell 0.4 percent to HK$6.47 at the close in Hong Kong, before the result announcement.

Profit Outlook

Profit this year will be “worse” than 2008, Chairman Jiang Jiemin said March 5 in Beijing. Net income will probably fall 29 percent this year to 81.8 billion yuan, according to the median estimate of analysts surveyed.

PetroChina plans to produce 833 million barrels of crude oil in 2009, 4.4 percent less than 2008, the company said today. Oil processing may decline 1.4 percent this year, it said.

China’s government said in February gasoline and diesel demand may fall in the first six months because of the crisis. China’s net crude-oil imports declined to the lowest level in more than a year in January, according to customs data.

Still, China’s revised fuel pricing system that took effect in December may help to offset the impact of weaker demand.

Fuel Prices

The government in December replaced a guidance band for retail fuel prices with a market-based ceiling that includes the cost of crude oil, taxes and an “appropriate profit” for refiners.

China raised fuel prices by as much as 5 percent starting today to reflect the gain in global oil prices this year. The country had slashed gasoline and diesel prices in January after the cost of crude fell more than $100 a barrel from its peak.

“The new pricing system for oil products means the company can be sure to make a profit in refining from this year,” said Grace Liu, a Shenzhen-based analyst at Guotai Junan Securities.

Capital expenditure rose 27 percent to 232.2 billion yuan last year and will increase to 233.2 billion yuan in 2009, PetroChina said. Spending on exploration and production will be cut by 15 percent to 133.8 billion yuan, while expenditure on refining operations will rise 36 percent to 27.5 billion yuan.

PetroChina plans to make its refining business “a major profit contributor,” President Zhou Jiping said at a press conference in Hong Kong.

Acquisitions

The company aims to take advantage of low oil prices to expand overseas, Zhou said. PetroChina will “improve cooperation” with Russia, Venezuela, Iraq and Qatar, he said without elaborating.

Chairman Jiang said last year PetroChina plans to buy energy companies made vulnerable by the global credit crisis. China’s state-owned firms announced plans in February to invest $22 billion in mining companies, securing iron ore, copper and zinc assets from debt-laden entities unable to secure funding amid the global recession.

Chinese companies are boosting acquisitions overseas to take advantage of commodity prices that are at seven-year lows. According to the nation’s energy plan for the three years ending 2011, the government may tap its $1.95 trillion foreign exchange reserves and set up an oil fund to help companies expand abroad, China National Petroleum Corp. said last month.

PetroChina received a subsidy of 15.7 billion yuan in 2008 for refining losses, Chief Financial Officer Zhou Mingchun said.

Windfall Tax

Windfall tax payments rose 40.6 billion yuan from a year earlier, PetroChina said in its earnings statement. Chinese oil producers pay a tax on revenue for crude sold at more than $40 a barrel under a levy introduced in March 2006.

The tax will be lower this year because of oil prices, Liu of Guotai Junan Securities said.

Eighteen out of 24 analysts surveyed by Bloomberg have a “buy” or “hold” rating on PetroChina’s shares. The stock is among the top holdings of Mark Mobius’s Templeton Emerging Markets Trust.

PetroChina almost tripled on its first day of trading in Shanghai on Nov. 5, 2007, becoming the world’s first company to be valued at $1 trillion. The oil producer and refiner was valued at $297 billion on March 24, behind Exxon at $343 billion.

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