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[Interpreted] Good morning, ladies and gentlemen. This is Wei Fang, Deputy Head of Secretary. On behalf of PetroChina Company Limited, I'd like to welcome you all and thank you for attending the company's 2021 first quarter results analyst conference call. Please be kindly advised that the results materials could be downloaded at our corporate website in www.petrochina.com.cn. For our call today in Beijing office, we have Mr. Shouping Chai, CFO and Secretary to the Board; Ms. Payne, Deputy Head of the Board Secretariat; Mr. Jhong Sing-Bo, Deputy Head for Finance Department. We also joined by our colleagues from planning, finance, operation management and international departments as well as our team and the Board Secretariat. Now I'd like to welcome Mr. Shouping Chai, CFO and Board Secretary, to make opening remarks.
[Interpreted] Good morning, investors, ladies and gentlemen. It gives me great pleasure to meet you via the teleconference again. On behalf of the Board of PetroChina and the management team, I'd like to extend heartfelt gratitude to all shareholders and analysts for your long-standing trust and support. PetroChina issued its first quarter results of 2021 yesterday. In Q1, PetroChina wrote on the robust development of Chinese economy, fully leverage our integrated advantage in oil and gas in the industrial chain. We work hard to improve our quality and efficiency and secure excellent operational results and financial results. Our revenue, RMB 551.92 billion, up 8.4% year-on-year. The net profit attributable to the parent, RMB 27.72 billion, our best performance in the last 7 years. This is because of the robust development for Chinese economy and the integrated advantage of the company in oil and gas industrial chain, and this is also the results of the company in [indiscernible] confidence for development, work harder to optimize our management and with the concerted efforts from the whole company. At present, international energy supply and demand system has undergo fast adjustments. Green and low-carbon transition has become a new consensus. The new energy development has entered into an active stage. The digitalization and smart technologies is reshaping our industry. PetroChina will seize the opportunity of energy low-carbon transition. We'll actively deploy business models for clean production and grade and low carbon. Guided by the overall planning of 3-star approach of clean alternatives, strategic replacement and grade transition, PetroChina strives to achieve carbon peak around 2025 and near zero-emission around 2050, make our contribution to China's target of carbon peak and carbon neutrality and contribute to the global climate ambition. As global economy and international oil prices continue to recover, we estimate that in the first half of 2021, our performance will maintain a stable growth. We firmly grasp the strategic opportunity of global economic transition, speed up to build a new development advantage in great development and push forward our 5 strategies, including innovation, resources, market, internationalization, grade and low carbon. So working even harder to deliver excellent performance to bring better, larger value to shareholders and to take proactive actions to reward shareholders and give back to the society. Thank you all.
[Interpreted] Good morning, ladies and gentlemen. I'd like to give you a brief introduction for PetroChina's 2021 first quarter results. In the first quarter of 2021, as COVID-19 pandemic was put under effective control, the world economy showed a good momentum, good recovery, and Chinese economy is steadily picking up. China's GDP growth was 18.3% year-on-year. Boosted by factors such as economic recovery and continued OPEC production cost components, international oil prices continue to recover and the average price rallied. The domestic refined oil products consumption saw substantial year-over-year increase and recovered to pre-pandemic level. The domestic natural gas demand also registered large increase. In the first quarter of 2021, while grasping the favorable opportunities of macroeconomic recovery, demand rebound and the price increase in oil and gas market, the company further improved quality and efficiency, continued to optimize production and operation, vigorously strengthened marketing, moved further to promote green and low-carbon transition and strictly control costs and expenses. Operating profit increased significantly year-on-year, and the financial status remain sound. We managed to achieve the best performance in the past 7 years. According to IFRS, in the first quarter of 2021, PetroChina recorded revenue of RMB 551.923 billion, up 8.4% year-on-year. Operating profit, RMB 44.780 billion, up by RMB 48.159 billion year-on-year. Net profit attributable to the parent company was RMB 27.721 billion, up by RMB 43.951 billion. Earnings per share was RMB 0.15, increased by RMB 0.24 year-on-year. Exploration and Production segment struck with cost-effective exploration and development and strive to increase economically recoverable results and profitable production. The oil and gas output reached 417 million BOE, up 0.8% year-on-year. Domestic oil and gas output reached 373 million BOE, up 4.3% year-on-year. The company implemented the strategy of stabilizing oil and increasing gas, saw rapid growth in domestic natural gas production, which was 1.12 TCF in the first quarter, up 9.6% year-on-year. The overseas oil and gas output was 44.1 million BOE, down by 21.7% year-on-year, mainly due to the decrease in share production as a result of rising oil and gas prices. The company strictly controlled costs and expenses. The lifting cost was USD 9.98 per barrel, down 1.0% year-on-year and 8.0% year-on-year adjusted for exchange rate. The Exploration and Production segment recorded operating profit of RMB 12.882 billion, down RMB 2.001 billion. In respect of Refining and Chemicals, the company gave continued priority to market, strengthens the management of production and operation, continue to optimize product structure and start to increase production and sales of high value-added products. In 2021 Q1, PetroChina processed 298 million barrels of crude oil, up 7.8% year-on-year. Production of refined fuels was 26.949 million tons, up 6.9% year-on-year; gasoline output was 13% up year-on-year; kerosene, up 18.7%; diesel output, down 1.2%. We produced 1.609 million tons of ethylene, up 4.5% year-on-year. The company persisted in strict control of costs and expenses and endeavor to expand margins. The Refining and Chemicals segment recorded an operating profit of RMB 14.675 billion, a significant increase of RMB 23.377 billion, of which the Refining business recorded an operating profit of RMB 10.205 billion, an increase of RMB 16.497 billion, mainly due to increase in sales of refined products, high price and inventory gains. The Chemicals business recorded an operating profit of RMB 4.47 billion, an increase of RMB 6.88 billion year-on-year, mainly due to the increase in sales and prices of chemical products. The Marketing segment strengthens control over marketing costs and continue to optimize inventory management. In the first quarter of 2021 a total of 36.248 million tons of refined oil products were sold, up 2.2% year-on-year. Domestic sales for refined oil products were 24.195 million tons, up 20.9% year-on-year: of which gasoline, up 29.0%; kerosene, up 83.7%; diesel, up 3.6%. The Marketing segment achieved an operating profit of RMB 3.315 billion, an increase of RMB 19.908 billion year-on-year, affected by increased sales volume of refined oil products, rising prices and inventory gains. The Natural Gas and Pipeline segment sees the favorable opportunity for rebounding market demand, enhanced market development and started to promote sales volume and efficiency in peak season. In the first quarter of 2020, domestic natural gas sales were 54.655 BCM, up 14.6% year-on-year. The company continued to optimize gas portfolio, ensure that domestically produced gas was sold out and tried to reduce the cost of imported natural gas. The Natural Gas and Pipeline segment achieved operating profit of RMB 18.519 billion, increased RMB 7.16 billion or 63% year-on-year, mainly due to the combined influence of factors such as the increase in natural gas sales, the decrease in the cost of importing Natural Gas and Pipeline asset restructuring in the previous year. These are updates of the first quarter results. Going forward, PetroChina will rigorously carry out the 5 development strategies of innovation, resources, markets, internationalization, grade and low carbon. We'll emphasize on efficient exploration and cost-effective development, stabilize oil outputs and speed up debt reduction and improve the overall efficiency of domestic upstream business. We'll emphasize on structural adjustments and integrated coordination and improve the overall efficiency for Refining, Chemicals and Marketing businesses. We'll emphasize on the share in end-user market and promote the integrated development of natural gas and new energies. We'll emphasize on risk control and structural optimization for the sound development of overseas business. We'll put innovation in the top of our strategies, continue to improve independent innovation capacity. We'll accelerate the development of new energy and strive to promote ERP. With that, the company's May operation data in Q1 2021 and production targets in 2021 for your reference. Ladies and gentlemen, the company will follow through on the deployment of the Board of Directors and try to build itself into a world-class international energy company of standard offers to deliver excellent performance and take practical actions to reward shareholders and give back to the society. Thank you, all.
[Interpreted] Now we will have a Q&A session with consecutive integrity. [Operator Instructions] Now the floor is open for questions.
[Interpreted] [Operator Instructions] JPMorgan, Parsley.
Congratulations on your strong result. This is Parsley from JPMorgan. My first question is your gas and pipeline earnings are quite strong, and just now you mentioned the improvement in imported gas profits. Can you share some of the details? For example, how much was the profit interest quarter? And roughly how much op impact was there from the loss of the PipeChina assets? My second question is, if I look at PetroChina's E&P CapEx guidance, it is down by 6% year-on-year even though gas production guidance is up by 3% year-on-year, while crude oil CapEx guidance is flattish -- crude oil production guidance is flattish. So is there a difference in the CapEx intensity between your oil and gas projects?
[Interpreted] This is a question for Deputy Head of PetroChina answering your first question. There are several reasons behind the profits of Natural Gas and Pipeline business. As mentioned in our presentation, in first quarter, we have -- the profit was up by RMB 7.16 billion. As mentioned in the presentation, in China, the sales volume saw a substantial increase of 14.6% year-on-year growth, and the price for natural gas sales also saw a 1% increase. Despite the impact from the restructuring of our pipeline business, in the first quarter, we achieved a profit of RMB 2.98 billion. And also, we have a 29.9% equity investment in PipeChina. The return is RMB 1.58 billion. So in total, the profit is around RMB 3 billion. For the Natural Gas and Pipeline business segment, we made a profit of RMB 11.3 billion. That is from the type of business that is RMB 3 billion. And besides the factors of increased sales volume and prices, there is also a factor from the reducing of the cost of importing natural gas reduced by around 20%. As for the reasons behind the decline of importing natural gas costs, last year, in the low oil price environment, there is around 3 -- 9-month time lag between the international oil prices and the importing natural gas price. So in the first quarter, the price was reflected, especially in the peak season. And another reason is the appreciation of RMB from last year's RMB 6.97 to RMB 6.48 for this year. That's the reason for the decline of importing natural gas cost. As international oil prices continue to recover and fluctuate, our benefits from this aspect might be eased.
[Interpreted] Mr. Wang Shu-Jyuan from Planning Department is answering the second question.
[Interpreted] Standing by the principle of company first, considering both the amounts and profitability and we set CapEx by the income control the overall amount to put profitability first, ensuring CapEx dilution while cut the others, and PetroChina has set a CapEx of RMB 239 billion. Business CapEx is similar to that of last year. In first quarter, despite the increase of oil prices, PetroChina has remained the strategic focus and will continue to carry out prudent investment, targeted investment and profitable investments. And at present, we have no adjustment plan for our CapEx. From fourth quarter, our products are going very smoothly. That's all.
And the next question comes from Neil with Bernstein.
Congratulations on the result. I think this is one of the first times I've seen downstream recording a better operating income than upstream. So for the refining margins, my question is really, how sustainable do you think these higher margins are? And to what extent was this driven by inventory gains? So if you could give us the inventory gains that you had in the refining segment and also in the fuels marketing segment? And the second question is around the -- going back to the gas division and the exceptional profits that were made there. Was there any contribution from the one-off gain from the Kunlun pipeline divestment in 1Q? Or should we expect that in the second quarter?
[Interpreted] Jhong Sing-Bo, Deputy Head of Finance Department is answering your first question.
[Interpreted] Regarding the profit of Refining and Chemicals business segment, inventory gain is absolutely effective. In general, for Refining segment, the inventory gain is around RMB 5.3 billion. And for Chemicals business, because last year, in 2020, we started a loss of RMB 2.4 billion. And this year, we make a progress of RMB 4.47 billion, up by RMB 6.68 billion. And for the profits in the Chemicals segment, because we have for a substantial increase in sales volume and also the gross margin, in the first quarter, you have also may notice that our production of ethylene was 1.66 million tons. Thanks to the structural optimization, our gross margins have improved. And another important factor is the sales volume of refined products. Because in last year in the first quarter, especially in February and March due to COVID-19, the utilization ratio and sales has been impacted. But this year, we have maintained a relatively high utilization ratio and sales volume. As international oil prices stabilizes, without the inventory gain, we can manage to maintain a stable gross margin. And in normal times, our gross margin might be as high as the first quarter.
[Interpreted] Mr. Wei Fang is answering your second question.
[Interpreted] Kunlun Energy issued a circular on December 22, 2020, to sell its 60% equity interest in Beijing Pipeline and a 75% equity in Dalian LNG Company. And currently, the transaction has been closed. According to the circular of Kunlun Energy, the net amount of the proceeds from this transaction, 50% will be used to pay back to shareholders, 40% will be used to expand the natural gas business in end-user markets and around 10% will be used to pay back -- to pay the existing debt and for general operation. After the transaction between Kunlun Energy and PipeChina and after the process was identified, PetroChina will grab investment returns based on a shareholding in Kunlun Energy and customs -- the process from Kunlun Energy's transaction is around RMB 18 billion. PetroChina's pretax profit will be at another RMB 18 billion and had RMB 9 billion of net profit to the parent company. This will be reflected in the second quarter, and the final data is subjected to the authority.
[Foreign Language]
[Interpreted] With Morgan Stanley, I have 2 questions. First is regarding your natural gas business. You mentioned that this year, PetroChina will increase importing natural gas volume. And how much will we increase? And this year, well, how much will the cost be increased? Second, in the first quarter, the company's income tax has been lower. Will it be sustainable for the whole year? And what's the reason behind that?
[Interpreted] Mr. Shouping Chai, CFO, is answering your question.
[Interpreted] In first quarter, PetroChina imported 18.9 BCF of natural gas, up 1.8 BCM year-on-year. For the whole year, according to the plan, that is around 70 BCM, but we will also make relevant adjustments based on the market. As my colleagues just mentioned, the imported natural gas cost was relatively lower because it is linked to the international oil prices, and there is a 9-month time lag. Therefore, it is fair to say the low imported natural gas costs did contribute to our profit in the first quarter. Going forward, as the imported natural gas price is linked to the international oil prices. So in general, it might be -- it might increase by around 20%. Regarding your second question about the company's income tax, in Q1, the company's tax rate is around 27%. There are several reasons. First, we have rigorously promoted to improve the quality and efficiency, and great progress has been made in dealing with the nonperforming companies under PetroChina. In the past, the reason why PetroChina's income tax rate was relatively high is because for some of our regional companies, they are loss making. So although the profitable companies collect leverage the tax, but the loss-making companies cannot offset that. Therefore, we have a relatively high income tax rate.
[Interpreted] In the interest of time, last question, please.
[Foreign Language]
[Interpreted] My first question is regarding PetroChina's strategies or tours or carbon peak and carbon neutrality. What's your latest developments? The second question is that -- is about the newly established industry capital investment company. What's PetroChina's strategy in this regard? Another question from me is about the profit from the Chemicals business segment.
[Interpreted] PetroChina high values, grade and low-carbon development, and we have incorporated the grade and low carbon into 1 of our 5 development strategies. The company is still committed to follow our overall planning of 3-step approach. That is clean alternative, strategic replacement and a great transition. We're trying to achieve carbon peak around 2025 and achieve near zero emission around 2050.
PetroChina also have clear cost measures. First is to promote the fast development of natural gas. By 2025, the gas production will account for 55% in our total production mix. Second is to promote the integrated development of natural gas and power generation. The third is to press ahead with the free action plan to carve the carbon emissions. The fourth is that we will vigorously implement the polystyrene, carbon sink and CC U.S. and try to achieve carbon removal. Regarding your second -- third question about Chemicals business, in Q1, we did have a relatively good performance and a relatively good gross margin. Entering the second quarter, the trend will maintain. Therefore, entering the second quarter, PetroChina will continue to implement the strategy of reducing the fuels and increase the production of Chemical products. And also for our ethylene farms, they are run at around 100 utilization ratio.
[Interpreted] To promote the transition and upgrading of CNPC, we propose to set up a company among PetroChina, the parent company of PetroChina CNPC and CNPC Capital. The company has certain CNPC equivalent capital company. To set up such a company for strategic emerged industries, we consider the following 3 aspects.
First is to implement our innovation in green and low-carbon strategies to build our energy system with diverse energy sources. Second, by promoting the financial investments in emerging industries. It could integrate and support the emerging industries and to further improve our financial and investment quality. So both win new technologies and new business models. Third is to revitalize our capital stock and to improve and enhance the value of our existing capital. And at present, the shareholding structure is as follows: CNPC, 51%; PetroChina, 29%; and CNPC Capital, 20%. We believe the establishments for such a new company will be beneficial for both PetroChina and CNPC in developing the new energy business and new material business. This concludes today's presentation. If you have any further questions, please feel free to contact us or send your questions to PetroChina Investor Relations via e-mail at hko@petrochina.com.hk. Once again, thank you for joining us today, and I hope we have the opportunity to see you soon. And last, wish you safe health and have worthwhile investments. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]