PetroChina (PTR), Exxon Mobil (XOM): An Energy Play On China’s Growth

PetroChina Company Limited (ADR) (NYSE:PTR) is the largest oil and gas producer in China, and with over $300 billion in revenues annually, is one of the largest companies in the world of any kind.  With shares still just worth less than half of what they were worth at the 2007 peak, is this the right time to get in?

PetroChina Company Limited (ADR) (NYSE:PTR)’s revenue growth has certainly reflected the overall growth of China’s economy, particularly in the middle class.  As more ordinary citizens earn disposable income, the number of cars on the road will increase dramatically, similar to what happened in America after the Model T was introduced.

About PetroChina

PetroChina engages in virtually all aspects of the production and sale of oil and gas in the People’s Republic of China (PRC).  The company is largely controlled by the government, with 87% of its shares owned by the state-run China National Petroleum Corp.

The company holds exploration and exploitation licenses for oil and gas covering about 458 million acres, mostly in northeastern, northern, southwestern, and northwestern China. Proved reserves are over 11 billion barrels of crude oil and over 66 billion cubic feet of gas.

On the refining side of the business, PetroChina Company Limited (ADR) (NYSE:PTR) operates 29 separate refineries and chemical plants, where the company produces petrochemical and derivative products.  The company markets its refined products through its vast distribution network, which includes over 19,000 service stations and a number of independent distributors, as well as over 36,000 kilometers of natural gas pipeline.

Growth and Valuation

PetroChina Company Limited (ADR) (NYSE:PTR) is expected to earn $10.64 per share for this year, meaning that it trades at a P/E ratio of 12.4 times current year earnings, which are expected to increase to $12.42 and $13.67 over the next two years, for forward annual earnings growth of 16.7% and 10%, respectively, which more than justifies the multiple. Additionally, the company is an excellent income stock, with a current yield of 3.4%.  The actual dividend payout tends to fluctuate more than that of U.S. stocks due to exchange rates; however the payout has been over $3 U.S. per share since 2005.

Alternatives

Alternatives to investing in PetroChina include other Chinese oil and gas stocks, such as China Petroleum & Chemical Corp (ADR) (NYSE:SNP), as well as American companies such as Exxon Mobil Corporation (NYSE:XOM), which my regular readers know is one of my favorite investments for the long term.  So, how does PetroChina measure up to these alternatives in terms of value, income, and growth potential?