PetroChina’s reverse roadshow in Sichuan-Chongqing area revealedthe huge potential to boost natural gas output of the area and the plansof downstream gas utilisation. The growing contribution of its gasvalue-chain operations will increase the resilience of its earnings amidlikely decline in oil price ahead. We reiterate our BUY calls on thecompany and raise our target price for its H shares to HK$9.62.

Key Findings

PetroChina Southwest Oil & Gas Field (SWOGF) is an important naturalproducing subsidiary of PetroChina. In Sichuan Basin, PetroChina has totalnatural gas resources of 52.93trn m3 and proven recoverable gas reserves of4.92trn m3. The low exploration ratio (9.3%) means there is huge potential toput more gas reserves on its book in future.

In 2024, the total oil and gas output of SWOGF reached 35.79m tonnes, rankingthe 2nd largest in PetroChina. Natural gas output reached 44.8bn m3, up 9%YoY and accounted for 47% of gas output growth of PetroChina. Gas producedinclude conventional gas, tight gas and shale gas. Gas output should exceed50bn m3 in 2025.

SWOGF targets to increase annual natural gas output to increase to 60bn m3and annual crude oil output to 0.6m tonnes by 2030. The ROI of the oil and gasprojects of SWOGF is expected to exceed 15%.

To consume the growing natural gas output, SWOGF plans to invest in gas-firedpower plants in the form of JVs. The gas demand from power generation is waybelow that of the US. Its quick response time makes gas-fired power a goodcomplement to the rising but unstable power output from renewable like solarand wind.

Key Risks for Rating

Sharp fall in oil price.

Higher-than-expected costs.

Valuation

We increase our DPS forecasts by 7-9% for 2025-27 as it is increasingly likely thatthe company will keep its DPS unchanged for 2025 and we further expect it tokeep the payout ratio at around 55% for 2026-27 given its very strong expectedfree cashflow. Hence, we raise our target for its H shares to from HK$8.83 toHK$9.62. Our target valuation is still 5% average 2025-27E dividend yield.

We also raise our target price for its A shares from RMB10.16 to RMB10.92. Westill set our target price based on its 3-month average A-H premium which hasnarrowed from 26% to 25% since late October 2025.