PetroChina's Cure Involves Halving Its Workforce, Says Bernstein

(Bloomberg) -- Sanford C. Bernstein & Co. has a simple prescription to cure what ails PetroChina Co.’s share price: do less national service and pay more attention to investors.

The state-controlled giant, which holds its annual general meeting tomorrow, should focus investment on its best drilling projects, slash its bloated workforce, shut down refineries, curtail money-losing natural gas imports, and restructure management’s incentives so that they’re better aligned with shareholder goals, analysts including Neil Beveridge said in a note that included an open letter to Chairman Wang Yilin.

The measures are necessary to revive PetroChina’s stock price, which last week fell to the lowest in more than three years in Hong Kong. It’s left China’s biggest oil & gas firm with a market capitalization of just $177 billion, a far cry from the $1 trillion-plus of 2007, when it was briefly the most valuable company in the world.

“Shareholder expectations for PetroChina are lower today than at almost any point in the company’s 20-year history,” Beveridge said. “Investors have all but given up on the company.”

A major problem is that the company is hamstrung by government policy. It employed 476,000 employees at the end of 2018, more than Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell Plc, BP Plc and Total SA combined, according to company filings. Oil-producing regions in China are dependent on the industry for jobs, and lay-offs could lead to social unrest, Beveridge said. Still, the company should press on with reforms.

“Most oil companies have found that staff cuts often lead to better performance as the workforce is high-graded and more efficient,” Beveridge said. “While there are limitations to what PetroChina can do, if they are to become world class, they need to start by cutting their workforce in half.”

PetroChina declined to comment on the letter from Bernstein, which, criticisms aside, still rates the stock as outperform.

In a separate note, Bernstein said any announcements on China’s looming pipeline reforms will remove uncertainty and act as a catalyst for shares. Other analysts are also generally bullish on the stock at these diminished levels: 19 out of 26 rate it as a buy, according to data compiled by Bloomberg.

To contact the reporters on this story: Dan Murtaugh in Singapore at dmurtaugh@bloomberg.net;Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Jason Rogers, Jasmine Ng

©2019 Bloomberg L.P.