China’s biggest oil and gas producer PetroChina – the first company in the world to reach a US$1-trillion valuation more than ten years ago – is now so cheap that it is worth less than the value of its oil and gas reserves.
PetroChina is listed in Hong Kong, Shanghai, and New York. It has been trading in Hong Kong and New York since 2000, a year after its parent, China National Petroleum Corporation (CNPC), created it by transferring most of the upstream assets to the new company.
PetroChina’s H-shares traded in Hong Kong give the company a current enterprise value of the equivalent of US$169 billion, while analysts at Bernstein have estimated that its proven oil and gas reserves in the ground are worth US$208.7 billion, Bloomberg reports.
Typically, no energy company should ever trade below the value of its reserves in the ground, because a premium to the resources value implies that a firm has growth potential to develop those resources, Bernstein told Bloomberg.
PetroChina, however, is currently the exception to the rule, as its enterprise value/reserves value ratio is now below 1—at 0.801, the lowest among 25 large oil and gas companies around the world that Bernstein tracks. PetroChina is also the only one of those 25 firms with a lower enterprise value than the value of its reserves.
“There is no valuation method that can validate the current share price,”
Jefferies Group LLC analyst Laban Yu, told Bloomberg,