Chinese energy giant PetroChina Co. Ltd. PTR is willing to divest its 50% interest in natural gas pipeline firm for as high as $2.4 billion. This is in accordance with the aim of China National Petroleum Corporation (“CNPC”) – parent company of PetroChina − to meet the government set profit target for the year.

To say it in another way, with the divestment, PetroChina will likely strengthen its overall financials that have been severely impacted by persistently low oil and natural gas prices.

The impact of low commodity prices on earnings was reflected in PetroChina’s disappointing third-quarter 2015 results. China’s dominant oil and gas producer announced earnings of RMB 5.2 billion or RMB 0.03 per diluted share compared with RMB 27.9 billion or RMB 0.15 per diluted share in the year-earlier period. Earnings per ADR came in at 47 cents (exchange rate: US$1.00 = RMB 6.35, 1 ADR = 100 shares), which failed to beat the Zacks Consensus Estimate of 90 cents. The underperformance can primarily be attributed to the plunge in oil prices, partly offset by higher output.

PetroChina is the largest integrated oil company in China established in Nov 1999 as part of a restructuring of state-owned CNPC. Currently, CNPC holds a stake of 86.35% in PetroChina. However, the recent free fall in the Chinese stock market has not spared even blue-chip stocks like PetroChina. The government-backed oil company's ADRs plunged 40% in the last six months. Predictably, the crude price slump has affected the group’s earnings and cash flows. Furthermore, weakened industrial activity in China has dampened the demand for PetroChina's products like diesel.

As a result, PetroChina currently carries a Zacks Rank #4 (Sell), implying that it will underperform the broader U.S. equity market over the next one to three months. 

Meanwhile, there are some better-ranked players in the energy sector such as Energy Transfer Equity LP ETE, Murphy USA Inc. MUSA and Seadrill Partners LLC SDLP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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