This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Jefferies Questions PetroChina's Financial Disclosure

NEW YORK ( TheStreet) -- PetroChina (PTR), the largest oil company in China, cannot explain billions of dollars in revenue shortfalls and losses, according to a Thursday report by Jefferies.

Jefferies, in a scathing research note, said they waded through a "jungle" of PetroChina's accounting disclosures "machete in hand" and emerged with fundamental questions about the transparency of the oil driller's financial statements and specifically its annual 20F filing with the Securities and Exchange Commission.

A team of analysts led by Laban Yu and Jack Yu said they could not explain why PetroChina is falling billions of dollars short on revenue the company derives from its reported energy production volumes and pricing.

PetroChina's upstream revenues declined in 2012 despite increasing volumes, flat oil and higher gas prices, according its financial disclosures, Jefferies said. The firm calculated that PetroChina had a revenue shortfall of about $10 billion in 2012 and pointed to unexplained losses within PetroChina's exploration and production operations.

Non-upstream businesses within PetroChina's E&P segment have consistently and inexplicably lost money, according to Jefferies. The analysts calculated $4 billion and $7 billion in opaque E&P segment losses, and characterized such businesses in quotation marks. "These "businesses" have always lost money... Why do they always lose money?," the anlaysts wrote.

The firm's analysis comes just as PetroChina has been entangled in a widening graft probe that has chipped away the oil giant's market capitalization. In August, PetroChina removed four of its managers amid a widening probe. According to a Sept., 2 report from the official Xinhua News Agency, former PetroChina Chairman Jiang Jiemin was been removed from his post as head of the state assets regulator and was also under investigation.

Concern over PetroChina's accounting appears to be tied to authorities' graft probe.

"What we have unearthed, we believe, is not a 'house of cards' with fraudulent profits; quite the opposite, we believe PetroChina has superb assets which, unsurprisingly, has attracted many unhelpful 'constituents.' Corruption investigations sweep away 'house of cards' enterprises, but strengthen companies whose quality assets are beleaguered by graft," the Jefferies analysts wrote.

Still, the analysts caution short sellers who are "itching to go at PetroChina as corruption investigations expose the company to years of headline risk." They say PetroChina is not another Enron, referencing the defunct Houston-based energy trader that failed amid the largest accounting fraud in U.S. history.

PetroChina "has superb assets which have, unfortunately, sprung all kinds of leaks," the analysts concluded. If those leaks can be plugged, PetroChina's shareholders could benefit.

In spite of Jefferies critical research note, they rate shares in the oil driller a "buy."

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,254.47 +97.62 0.57%
S&P 500 2,009.53 +7.96 0.40%
NASDAQ 4,589.5430 +27.3540 0.60%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs