2nd UPDATE: PetroChina 1st Half Net Down 7.2% On Lower Oil Price

PetroChina Co. (PTR), China's biggest listed oil firm by capacity, said Friday its first-half net profit fell 7.2% from a year earlier because of lower oil prices and weaker energy demand.

The Beijing-based company said the world's oil market will continue to face uncertainties in the second half. But underscoring China's thirst for energy, it said upstream exploration, particularly outside the country, will remain a top priority.

President Zhou Jiping told reporters in a press conference he is upbeat about the prospects for the energy market in China in the long run and said the company hopes to boost its annual natural gas output to 130 billion cubic meters by 2015 to take advantage of surging demand for clean energy.

"We see a huge potential in China's natural gas business," said Zhou. "We've maintained a double digit growth rate in our natural gas output in recent years. We hope to maintain this high growth rate in the next few years," he said.

Zhou said he expects China's annual demand for natural gas will reach 215 billion cubic meters by 2015 and will further increase to 239 billion cubic meters by 2020. Natural gas will account for 50% of the company's total output by 2015, he said.

PetroChina said Friday its net profit for the six months ended June 30 totaled CNY50.50 billion (US$7.40 billion), down from CNY54.44 billion in the same period last year, because of a lower contribution from its core upstream business.

Revenue fell 25% to CNY415.28 billion from CNY551.34 billion.

Operating profit in the firm's exploration and production businesses plunged to CNY37.64 billion from CNY96.44 billion, due to the average selling price of its crude oil more than halving to US$42.46 a barrel in the first half from US$93.45 a year earlier.

PetroChina's crude oil output in the first half fell 4.8% to 417.7 million barrels, while its natural gas output rose 10.6% to 1.201 trillion cubic feet.

Its refining business, however, swung to an operating profit of CNY17.19 billion - the highest of any half since the company listed in 2001, from an operating loss of CNY59.02 billion a year earlier, after Beijing eased price controls.

"Recovery of the world economy from the global financial crisis is still uncertain...the foundation for economic rebound is not well established," PetroChina said in a statement.

The company also said will strive to achieve faster growth in both upstream and downstream overseas projects.

Zhou also said PetroChina is interested in bidding for more Iraqi oil fields in the second round of bidding scheduled in December, after winning a joint bid with BP PLC (BP) for the Rumaila field in southern Iraq during the first round in late June.

"We will likely do that (in the second round) in a joint venture," he said, without revealing the company's partner.

In the second round of bidding, 10 oil fields and one gas field in Iraq will be on offer.

China's energy markets have taken a hit from the country's economic slowdown, which has affected industrial activity, leading to reduced fuel demand and a slowdown in construction.

PetroChina said in March it expected to cut its crude oil output 4.3% this year and its refinery production by 1.4% in response to weakening domestic demand. But it also raised its full-year capital expenditure plan marginally to CNY233.1 billion from CNY232.2 billion.

The government has adjusted domestic fuel prices five times since the beginning of this year. It cut gasoline and diesel prices by 3% in July, after raising them 8%-10% in June in response to a rebound in crude oil prices in the second quarter.

Analysts expect China to raise domestic fuel prices this week by 4%-8% over current gasoline and diesel retail prices, in response to crude price gains.

The company proposed a first-half dividend of CNY0.12417, down from CNY0.131827 last year.

-By Yvonne Lee, Dow Jones Newswires; 852-2802-7002; [e-mail]

(Aries Poon contributed in this story.)