Here Is Where PetroChina Really Beats Exxon

Whenever the market capitalization of PetroChina approaches or passes that of ExxonMobil, it becomes a headline.  This has been going on for the past three years.  It happened in 2012.  It happened again on Thursday.  And then by Friday’s closing on the NYSE, Exxon’s market cap was $358.9 billion to PetroChina’s $352 billion.  The Exxon vs. PetroChina story is part of the overall narrative of China catching up to, and even replacing, the U.S. in world dominance.

But while PetroChina is a staple investment in all large cap China investment funds, including the iShares FTSE China (FXI) exchange traded fund, it is not bigger than Exxon when it comes to what matters: oil and the technology to pull it out of the ground.

As an investment, PetroChina trades fairly close to Exxon in terms of price. It’s just 13.9x trailing earnings compared to Exxon’s multiple of 11.2x.  Investors who want to be part of China’s thirst for oil and don’t have a problem investing in state run enterprises, will buy PTR outright. There is no competition for investors, as one has a stake in the U.S. and the other has a stake in China.

That said, the story of Exxon being beat by PetroChina is mainly a market-cap story, one at the volatile whims of the market that has nothing to do with the realities of either companies.  The market values China more on Monday, values it less on Tuesday, and so on.  The fundamentals at the two oil giants are different, and in this regard, Exxon has more assets and is therefore worth more that PetroChina.

At year-end 2014, ExxonMobil’s proved reserves totaled 25.3 billion oil-equivalent barrels, which was made up of 54% oil and 46% natural gas, the company said on Feb. 23. It is not an exact science in comparing the two companies. For starters, definitions of proven reserves and proven developed reserves are different. Exxon uses proven reserves in their balance sheets, as required by the Securities Exchange Commission. PetroChina uses both. In 2013, PetroChina’s proven reserves were 10.8 billion barrels of oil. That gives Exxon about 3.3 billion barrels of oil more than PetroChina, based on the company’s 54% figure.

When it comes to oil, ExxonMobil has more of it. When it comes to money, China has Exxon beat.

PetroChina is cash and equity rich, however. Exxon had $4.6 billion in cash and cash equivalents at the start of last year, while PetroChina had 51.4 billion yuan ($8.2 billion). It’s not easy comparing total assets because the companies don’t count the same thing in their financials. But in terms of total equity, PetroChina had 1.2 trillion yuan ($204.8 billion) to start 2014 and Exxon had $180.4 billion.

China also happens to be more levered up, at least long term.  The company reported some 302.8 billion yuan ($48.7 billion) in long term debt in their 2013 Annual Report, while ExxonMobil’s long term debt in the same report was just $6.8 billion.

PetroChina’s net income from its principal operations — including upstream and downstream –rose 2.8% to 2.21 trillion yuan ($357 billion) in 2013.  How did Exxon compare on that end? According to its annual report, net income was $32.5 billion.

Equity analysts say it is futile to compare the two, which is the reason why the headline grab is always based on market cap.  PetroChina is more levered than Exxon and due to its near monopoly status in the second most important oil consumer market in the world, it brings in more income from its operations, according to the company’s financial statements.

As an investment, anyone betting on long term energy is probably holding both of these stocks. PetroChina pays a slightly higher dividend, currently yielding 4.0.4% to Exxon’s 3.2%. But investors that prefer shying away from China government enterprises, and there are many, will continue to avoid this stock.  Over the last five years, PTR is up just over 6%.  XOM has it beat five-fold, thanks to its oil wealth in the U.S.   So far this year, though, PetroChina is following the general trend in Chinese equities. It’s up 17.4% this year, thanks in part to declining oil prices which help PetroChina downstream. Cheaper oil prices mean lower input costs for the crude PetroChina is pumping into its refineries to make fuel and petrochemicals.