PetroChina Co Ltd

SSE:601857

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to the PetroChina Company Limited 2020 Third Quarter Results Conference Call. [Operator Instructions]

Now let's welcome the host. Thank you.

[Xing Chong, executive]

Good morning, ladies and gentlemen. On behalf of PetroChina Company Limited, I would like to welcome you and thank you for attending the company's 2020 third quarter results analyst conference call. I'm Xing Chong Brian, Deputy Director of Investor Relations and Deputy Chief Representative in Hong Kong. On the call today, we have Mr. Wei Fang, Assistant Secretary to the Board and Head of Investor Relations; and Madame Yun Hong, Deputy Director of Financial Disclosure and IR team in Beijing.

First, it's my pleasure to invite Mr. Wei Fang, Assistant Secretary to the Board, for an opening remark.

[Wei Fang, executive]

Thank you, Brian, for the kind introduction. This is Wei Fang. First of all, on behalf of the management and my team at PetroChina, I would like to thank you all for attending today's third quarter results conference call and webcast. I would also like to thank all the research team and PMs, especially our shareholders, for your long-term support to PetroChina and our team in Beijing and Hong Kong, particularly at this very difficult time.

Since the beginning of the year, in face of the unprecedented challenges brought by COVID-19 and lower oil prices, the Board of Directors and management have actively responded to the severe test. We actively coordinated pandemic prevention and control and to ensure smooth operation and production. In particular, the management have launched a vigorous campaign to improve quality and efficiency across the company and carried out careful budgeting and intensive production and operation optimization to minimize the losses caused by COVID-19 and impact of low oil prices.

Through the joint effort of all staff, the company has made great progress in the third quarter, and we are now seeing very encouraging signs of recovery. Production and business operations have gradually returned to normal. Business performance has been improving month-by-month, since the second quarter. In the third quarter, the net profit was CNY 40 billion, with a sharp turnaround and profit increase of CNY 53.8 billion Q-on-Q and CNY 31 billion year-on-year. As you can -- all can see from the result announcement, the overall financial position remains solid and strong.

The CapEx and cost control were further strengthened. Leasing costs are around $10 per barrel, down by 10.7%, significantly lower than our domestic and global peers. SG&A was down by 7.9%. At present, the company is facing a better micro-environment. With the solid progress of the resumption of work and production, China's economy is showing good momentum for further improvement. The domestic refined oil product and natural gas market have gradually recovered and demand have basically returned to normal. These factors all benefited the company's production and management.

With these positive factors in mind, I will now give the floor to Dr. Xing again, who will share a quick update on the third quarter results. Again as a reminder, the presentation material can be downloaded at our corporate website at www.petrochina.com.cn. Thank you. Brian?

[Xing Chong, executive]

Thank you, Mr. Wei. Now I would like to give a brief introduction of PetroChina's 2020 third quarter results. Please go to Slide 3. For the first 3 quarters of 2020, the global economy was in deep recession, affected by the COVID-19, which in turn further loosened the supply and demand balance in the international oil market. After witnessing a cliff-like drop, the international crude oil price recorded a sluggish rebound and is currently fluctuating at a low level.

As China managed to bring COVID-19 under effective control, the domestic macroeconomic operation has been recovering steadily with signs of improvements from quarter-on-quarter. And there was a change in the domestic economic growth in the first 3 quarters from negative growth to positive. In addition, the imbalance between the supply and demand arising from the abundance of production capacity in the domestic refined oil product markets was further widened. The situation of supply over demand in the natural gas market is changing better.

Slide 4. For the financial highlights, in the first 3 quarters of 2020, in light of the adverse situation arising from the sharp fall in oil and gas prices, the company continued to enhance quality and profitability. The operating results recorded a significant quarter-on-quarter increase and all business segments have been improving gradually. According to IFRS, during the third quarter of 2020, PetroChina achieved a revenue of RMB 497.1 billion, an increase of 18.4% in comparison with the second quarter. Profit from operations was RMB 66.3 billion, representing a substantial quarter-on-quarter increase of RMB 69 billion from the previous loss in second quarter.

The net profit attributable to owners of the company realized in the third quarter stood at RMB 40 billion, representing a substantial quarter-on-quarter increase of RMB 53.8 billion from the previous loss in second quarter, or a substantial increase of RMB 21.8 billion from the previous loss, after excluding profits generated from the pipeline asset restructuring. Basic earnings per share was RMB 0.219, an increase of RMB 0.294 in comparison with the second quarter.

Slide 5. According to IFRS, during the first 3 quarters of 2020, PetroChina achieved a turnaround with revenue of RMB 1,426 billion, profit from operations was RMB 60.3 billion, the net profit attributable to owners of the company was RMB 10 billion and basic earnings per share was RMB 0.055.

Slide 6. In the first 9 months of 2020, the average realized price for crude oil of the company was USD 40.06 per barrel, representing a decrease of 34.9% as compared with the same period of last year, of which the domestic realized price was $41.43 per barrel, representing a decrease of 32.5% as compared with the same period of last year. The average realized natural gas price was USD 4.61 per thousand cubic feet, representing a decrease of 16% as compared with the same period of last year, of which the domestic realized price was USD 5.25 per thousand cubic feet, representing a decrease of 11.6% year-on-year.

In light of the adverse situation arising from the sharp fall in oil and gas prices, the company facilitated the implementation of the initiatives to improve both quality and profitability and enhanced its control over all capital expenditure and also cost and expenses. There was a 10.7% year-on-year decrease in the unit oil and gas lifting cost and a 7.9% year-on-year decrease in the selling and administrative expenses.

Slide 7. As for the E&P sector, in the third quarter of 2020, the sector recorded a profit from operations of RMB 9.65 billion, representing a significant quarter-on-quarter increase of RMB 14.2 billion from second quarter as a loss. In the first 9 months of the year, due to the combined effect of factors such as decrease in oil prices, increase in sales volume of crude oil and also natural gas, the exploration and production segment generated an operating profit of RMB 20 billion, representing a decrease of 74% as compared with the same period of last year.

In respect of domestic exploration and production business. The company continued to optimize the deployment of its exploration activities and to strengthen its comprehensive geological research and the risk exploration target research. By focusing on launching sizable and profitable exploration activities in large basins and key areas, the company made important discoveries and strategic breakthroughs in Tarim, Sichuan, Junggar, Erdos and other basins. In adhering to the practice of strengthen both the production quality and profitability, the company on one hand secured a stable production in the existing oil fields and on the other hand, focused on building up its centralized production capacity in a sizable and profitable manner, so as to strictly control its investments as well as production and operating costs and in turn, to promote improvements in terms of both production and proficiency.

For overseas operation. In addition to coordinate the safe and stable operation of its existing projects and the development of new projects, the company also stepped up its efforts in prevention and control of risks, including those arising from COVID-19. In the third quarter, the oil and gas equivalent output was 319 million barrels, down by 9.3% Q-on-Q. And in the first 9 months of the year, the oil and gas equivalent output was 1.2 billion barrels, up by 4.3% year-on-year.

Slide 8. As for the Refining and Chemicals segment. In respect of refining, the company actively implemented a reduction of refining and increase of chemicals, effectively increased production of value-added products. In the third quarter, the company processed a total amount of 300 million (sic) [ 309 million ] barrels of crude oil, representing an increase of 6% from quarter 2. And in the first 9 months, the company processed a total amount of 877 million barrels of crude, representing a decrease of 3.2% in comparison with the same period of last year.

In the third quarter, the Refining and Chemical segment recorded a profit from operations of RMB 8.8 billion, achieving a significant quarter-on-quarter increase of RMB 10.7 billion from the previous loss in the second quarter. In particular, the refining business recorded a profit from operations of RMB 5.4 billion, representing a quarter-on-quarter increase of RMB 12.7 billion from the previous loss in the second quarter. Chemical business recorded a profit from operations of RMB 3.5 billion, representing an increase of RMB -- 25x year-on-year.

In the first 9 months of the year, the Refining and Chemical segment recorded a loss of operations of RMB 1.7 billion, representing a decrease of RMB 10.7 billion from last year. In particular, the refining business recorded a loss from operations of RMB 8.3 billion, representing a decrease of RMB 13.55 billion. And the chemicals business recorded a profit from operations of RMB 6.6 billion, representing an increase of 77% year-on-year.

Slide 9. In the third quarter of the year, the company produced 12 million tons of gasoline, up by 10.1% quarter-on-quarter; and 2.9 million tons of kerosene, up by 56% Q-on-Q; and 13 million tons of diesel, down by 6.7% Q-on-Q. In the first 9 months of the year, the company produced 34 million tons of gasoline, down by 8.3%; and 7.2 million tons of kerosene, down by 23.4%; and 39 million tons of diesel, down by 2.8% year-on-year. For the production of major chemical products, in the third quarter, the ethylene production up by 3% and urea production down by 0.1% Q-on-Q. And for the first 9 months, the ethylene production up by 9.9% year-on-year; the urea production up by 77.8%.

Slide 10. In the Marketing segment, the company stringently controlled its marketing costs to improve the overall profitability of industry chain. Sales of refined oil products reached 44 million tons in the third quarter, representing an increase of 7.3% Q-on-Q, of which the sales of gasoline up by 11.4%, the sales of kerosene up by 29% and the sales of diesel up by 1.1% in comparison with the second quarter. In the first 9 months, the marketing segment has sold 120 million tons of refined oil products, representing a decrease of 13%, of which the sales of gasoline down by 11.6%, the sales of kerosene down by 31.7% and the sales of diesel down by 10% year-on-year.

As for the operating profit, in the third quarter of 2020, the Marketing segment generated an operating profit of RMB 7.96 billion, an increase of 115.4% in comparison with the second quarter. Due to the impact brought by the factors such as decrease in sales volume, fall in price and decline in profits from inventories prevailing in domestic refined oil markets, the marketing segment recorded an operating loss of RMB 4.9 billion, representing an increase in loss of RMB 3.5 billion year-on-year for the first 9 months.

Slide 11. As for the Natural Gas and Pipeline segment, the company strived to lower the natural gas purchase costs and steadily promoted the restructuring of its pipeline asset. Due to the combined effect of factors such as the decrease in both the sales volume and prices of natural gas and also the impact brought by the profit from pipeline assets restructuring, the Natural Gas and Pipeline segment in the third quarter of the year generated an operating profit of RMB 43.3 billion, representing a significant increase of 13.4x quarter-on-quarter. And in the first 9 months of the year, the segment generated an operating profit of RMB 57.7 billion, representing an increase about 163% year-on-year.

In the third quarter, the net loss incurred from the sales of imported pipeline gas and LNG amounted to RMB 5.7 billion, a decrease in the loss of RMB 2.2 billion in comparison with the second quarter. In the first 9 months of the year, the net loss incurred from the sales of the imported natural gas amounted to RMB 17.5 billion, a significant decrease in loss of RMB 4.2 billion as compared with the same period of last year. The company will make further efforts to lower the import loss by controlling the import volume, lowering import cost together with other relevant measures.

Slide 12. During the period, PetroChina has successfully completed the pipeline restructuring transaction. On July 23rd of this year, PetroChina entered into the transaction agreement with PipeChina to dispose target assets, including major oil and gas pipelines, certain gas storage, LNG terminals and some of the [ paving ] oil and gas in exchange for PipeChina's equity interest and cash consideration. On September 28 of the year, the transaction was reviewed and approved by the second EGM of the company, which with the supporting rate of 99.9963%. On September 30th of the year, all of the conditions set out into the transaction agreement have been satisfied. The ownership of the target assets was passed to PipeChina at 24 o'clock on September 30, 2020. The total assets sold in the transaction amounted to RMB 354 billion. The book value of the net asset attributable to the owners of the company was RMB 200.66 (sic) [ 201.43 ] billion and the transaction value was RMB 247.2 billion.

As a consideration, the company recognized a long-term equity investment of RMB 149.5 billion in PipeChina and received a consideration in cash of RMB 97.75 billion. For the transaction, the company recognized profit before tax of RMB 45.8 billion and the net profit after tax of RMB 32 billion. The transaction has a profound meaning for both PetroChina and the oil and gas industry and is conductive (sic) [ conducive ] to the sustainable and healthy development of PetroChina and achieving sustainable and a positive operating results in the long term. As the largest natural gas developer and importer in China and as one of the major suppliers and service providers of the natural gas terminal markets, PetroChina will make great use of national wide oil and gas storage and the transmission facilities to improve operational efficiency and value creation capabilities.

Slide 13. Looking forward, the company will focus more on development of upstream oil and gas exploration and downstream business emission by the year of 2050 and create competitive advantage in green development. PetroChina will continue to vigorously implement its strategy of innovation, resources, market, internationalization, and green and low carbon development, promoting high-quality development of its main business, transforming its foundation for sustainable development to achieve green and low carbon transformation, endeavor to generate greater value for our shareholders.

Thank you. We will now open the floor to the questions. [Operator Instructions] May we have the first question please.

[Operator]

[Operator Instructions] Our first question is from Horace Tse.

[Horace Tse, analyst]

I have 2 questions, the first one, can I just clarify on the PipeChina transaction because I saw from your announcement yesterday, the book value of the transaction and the transaction value is actually lower than the July announcement. It's lower by about RMB 21 billion. So can I just verify the difference between the July one and the one that you have in the announcement yesterday?

The second question I have is with a lower oil price on a year-on-year basis for 2020, will you look to book some of the impairments in the upcoming full year results? [Foreign Language]

[Wei Fang, executive]

Horace, this is Wei Fang. This question was actually raised by a number of domestic shareholders. So I would try to answer in Chinese, and I'll have it translated into English later.

[Interpreted] Thank you, it has been a heated topic among our domestic shareholders as well. And the pipeline transaction has been an important project at heart for PetroChina this year and also was the biggest major event in the past 20 years in China's oil and gas industry. We also thank you for your support and the approval of our shareholders. On September 28, our EGM has already passed the proposed pipeline transactions with a support rate of 99.996%. And on September 30, based on the transaction agreement signed between PetroChina and PipeChina, the conditions precedent have already been satisfied. Therefore, the 2 companies have completed the handover of target assets along with the transfer of personnel.

During this transaction, the target asset total value of RMB 354.08 billion, net assets attributable to parent RMB 201.43 billion. As a consideration, PetroChina recognized a long-term equity investment into PipeChina of RMB 149.5 billion, along with cash proceeds totaling RMB 97.75 billion. The total profit before tax in these transactions is RMB 45.82 billion with a net profit after tax of RMB 32 billion.

According to our previous circular, the consideration will be RMB 268.7 billion, which was based on the appraisal and valuations as of December 31, 2019, which differs from that of the closing date of September 30, 2020. And the difference mainly relies in the following items. First, the PetroChina dividend payout in 2019 of CNY 12.3 billion and the first 3 quarters dividend of CNY 7.9 billion of -- first 3 quarter 2020 and which is tax free. At the same time, there is changes in the volume and prices of initial oil and gas in the pipeline, which is a result determined by the audit of both parties.

[Unknown Executive]

[Interpreted] As for the second question, Mr. [indiscernible] from the finance department will take it.

PetroChina attaches great importance to the impact of international oil and gas prices to the value of our long-term assets. We carry out testing on impairment every half a year. And according to the Chinese accounting standards, once the write-off has been confirmed on long-term assets there shall be no recoveries. However, IFRS does allow recoveries of long-term asset impairment. Therefore, PetroChina treats it with more discretion.

In the first 3 quarters of 2020, the oil prices have suffered drastic declines due to various factors. We believe the current oil prices level shall not reflect that of the long term. At the same time, from 2017 to 2019, PetroChina has written off long-term asset impairment totaling RMB 61.29 billion, in which oil and gas assets and mining blocks equity totaling RMB 44.13 billion. In the first 3 quarters of 2020, PetroChina believes that its consideration over the value of long-term assets has already been fully demonstrated. Therefore, in the first 3 quarters, we did not write off any long-term assets.

In the fourth quarter, according to accounting standards, PetroChina will maintain close communications with auditors and follow international oil and gas prices dynamics to carry out a scientific analysis of the changes, so as to better carry out testing of the asset value and consolidate the base of the assets and maintain a prudent financial profile. Thank you.

[Operator]

[Operator Instructions] The next question comes from Neil.

[Neil Beveridge, analyst]

This is Neil Beveridge from Bernstein. I've got 2 questions. My first question is, we've seen a strong recovery in 3Q. Assuming oil prices stay around $40 a barrel for the rest of the year and based on the data that you're seeing for October and presumably higher winter gas prices, do you think we'll see a sequential improvement again in profitability in 4Q versus what we've seen in 3Q?

My second question is more about the long term. You've highlighted PetroChina aims for a net zero target by 2050. Can you first of all clarify this is just a Scope 1 and 2 emissions only? And secondly, with China declaring a target of net zero by 2060, how does this impact your business plans for oil and gas? And can you give us any specific targets for new energy and low carbon investments that you plan to make here in terms of a CapEx number or the types of investments that you could be allocating your capital to? [Foreign Language]

[Wei Fang, executive]

Thank you, Neil for your -- good questions. This is Wei Fang, I would like to take your -- both question. So as I just mentioned -- and my apologies for not being -- you actually not being -- tuning in on the first portion of my opening statements. During my opening statement, I actually mentioned that we have -- in the third quarter, we have seen very encouraging signs of recovery and improvement. As you can see that the GDP growth in the third quarter was 4.9%, which averaged the first 9 months' GDP to 0.7%. So according to the -- currently, the government indicates implied growth for the whole year is around 2% and 2.5%. That indicate about a higher growth in the fourth quarter. So with this -- we saw this number on October, and it was also very encouraging and because of the winter season. So -- but now the oil price is locked -- or the future is locked for December. So basically, the oil price will be -- is quite foreseeable in the next 2 months. So for natural gas realization, I think we probably -- we are entering to the winter stage. So if the pandemic -- the outbreak is further controlled, I think the economy will grow and will have a strong momentum of growth. So, I'm very -- I'm quite optimistic about the fourth quarter results.

And in terms of your second question about green and low-carbon development, I -- also yes, let's go back to your first question. At the first quarter announcement, we actually announced that a true bottom line for the company for this year is that to maintain positive earnings and positive cash flow at a $40 price environment. I think that our record in the third quarter and the first 9 months have actually showcased that our commitments that we are positive and also -- in earnings and we are positive in cash flow. So -- and I think with further recovery in the fourth quarter domestic, I think the fourth quarter is quite optimistic.

And in terms of your second question about green or low-carbon development, I -- when our Chairman took office in January, actually he laid out his vision for the transition for the company, that is to grow gas, grow can, go green. So the green and low-carbon development strategy is a dedicated -- a decided strategy of PetroChina. And you're right that yesterday, the 19th CPC Central Committee meeting approved the guideline of the 14th 5-year plan, among which carbon-neutral goal was very much emphasized in that plan. And PetroChina is currently adopting the new green and low-carbon development in line with our drafting of the 14th 5-year plan for the company.

Basically, we have that like a 3-step plan, including clean alternatives, strategic replacement and green transition. We -- our goal is to build a low-carbon energy ecosphere with integrated development of fossil fuels and clean energy. So for the next 5 years, we'll be focusing more on the integrated development of natural gas and power, and we'll be more focused on development of geothermal, wind power and solar energy, and we will launch pilot project in hydrogen industry value chain.

So as indicated by our CEO that our current target is that by 2050, we will reach a near zero emission on first scale. So currently, our rough estimate is that within the next 5 years, we will be spending about CNY 10 billion on green and low-carbon transition each year -- for the next 5 years. Thank you.

[Operator]

[Operator Instructions] The next question comes from Andy from Morgan Stanley.

[Andy Meng, analyst]

I have 2 questions. The first question is related to the natural gas division. If you look at the gas production volume, I think the third quarter is seeing some slowdown versus the first half. And also, I see the price is seeing lower versus the previous quarters. But it's interesting to know we have successfully narrowed the gas import loss. So that's very exciting. I wanted to know what about the outlook for the fourth quarter regarding the volume and the price. And how do you think about the gas import loss as well as the total gas division operating profit for fourth quarter outlook?

The second question is related to the dividend. So we know, due to the large earnings in third quarter, we have turned a total aggregate profit for the company in the first 3 quarter to profit making. In that case, for the full year of 2020, how likely the whole company will be profit making? And when we consider the dividend, will we consider based on the total earnings or total cash flow or just the profit generated in the second half? So what will be the benchmark when we think about the dividend for the full year? [Foreign Language]

[Wei Fang, executive]

Thank you, Andy, for the good questions. So I will answer your first question in English. And the second question because some of the domestic shareholders were quite concerned about the dividend, so I will be answering in Chinese and translate it into English.

So the first quarter was actually lower, the summer season for natural gas. So the demand was relatively low and the price was actually applied by the summer price range arrangement. So the -- and so we actually made some maintenance in the some of the fuels and reduced some domestic production by 3.8 billion current quarter comparing to the second quarter. So -- and we actually increased our imports because the price -- import price was -- spot price was surprisingly low. So that is the reason for the reduction -- substantial reduction of the import losses.

And so the fourth quarter, that will be -- now, we have this relatively cold winter in the Northern part of China. So we will be soon trying to implement the wintertime pricing. So fourth quarter in terms of pricing, I think you will be seeing improvement. And in terms of volume, I think we will be -- the winter -- so I like warm weathers. But so -- but our natural gas sales, marketing, they really wanted weather to be cold so that they can deliver better earnings. So I think the fourth quarter in terms of production, so the -- I think it will be -- as a sign of recovery of the economy and the weather, I think the price and volume will be increased quite substantially.

In regards to the second -- your question on the dividend, I would like to answer your question in Chinese.

[Interpreted] Due to the COVID-19 pandemic and low oil prices, PetroChina suffered rather large loss in H1. However, given coordinated consideration of our performance, financial profile, cash flow as well as the proceeds from pipeline transactions, despite the yearly RMB 30 billion losses, we still issued a total dividend of RMB 16 billion, which is CNY 0.087 and up 12% year-on-year. In the past 5 years, we not just maintained the 45% payout ratio, but also issued special dividends based on the oil prices and the earnings of the company. We will continue to uphold the principle of rewarding our shareholders in H2 and practice a sensible and pragmatic dividend payout policy. We will coordinate between the long-term interest of the company's cash, cash flow major M&A projects in considering our payout policy. Thank you.

[Operator]

The next question comes from [ Mag Ki Chon ] from [ Madie and Madie ].

[Unknown Analyst]

Also congratulation on the results. We noticed that oil segment achieved positive results from EBIT level in Q3, so congrats on that. Two questions from me. Firstly, we saw some quarterly improvement in the refining and marketing division. May we know what's the inventory write-down for third quarter? Also what's our expectation for the fourth quarter inventory write-down and also some outlook for the refining division and refining margin? Second question, we saw some cost reduction in E&P with lifting costs down nearly 11% in the first 9 months. Is it more due to the optimization of the production, i.e., to stand a high-cost well? What's the further room for the cost reduction in the fourth quarter? [Foreign Language]

[Unknown Executive]

Okay. Thank you for questions. I'm [ Su Mo ] from the IR team. I want to take your first question regarding to chemical and refining performance. Because we are using moving average method to measure our units, so our inventory loss is not as big as our peers such as ChinaPipe. At the end of September, the inventory loss in the [ industrial ] segment is around -- CNY [ 0.17 billion ], and it is lower than at the beginning of the year, about CNY [ 40 million ]. And the second question is outlook of the fourth quarter. Yes, in the first 9 months, our company implemented the policy of the reducing the refinery and increase the chemicals, and we are -- we have good results from that. In the fourth quarter, we also will continue to make efforts to doing this, and I think we will have better results in the fourth quarter, according to the numbers of the October, and the chemical segment is very good. And the refinery market, it's currently going to the low season of the consumption of the oil products. The earnings of this segment is stable. So for the whole picture of the fourth quarter, I think that we will do good in this segment.

[Unknown Executive]

I am [ So Jo Lan ], also from the Investor Relations. I'd like to take your second question with regards to the cost reduction. And we are happy to see that in the third quarter, our -- the [indiscernible] of our E&P [indiscernible] came out to CNY 9.6 billion, a reversal of [indiscernible] of 4.5 in the second quarter. And one reason is higher realized oil price. And the other reason is what you mentioned, a good job we've done in our cost cutting. Our lifting cost for the first 3 quarters increased by USD 2.07 per barrel, down by 10.7% year-on-year. And for the third quarter, the lifting cost reached USD 11.94 per barrel, up USD 1.71 for Q-o-Q. There are several reasons. One of the reason is that, as you mentioned, that we optimized the production of our work upstream to slow down production of those high-cost [ wells ] and on average to lower the price. And the other reason such as the exchange rate, which have contributed to a USD 0.28 per barrel cost increase in the per unit lifting cost. And the other reason is the volume reduction for the overall production, which also increased the per unit lifting cost up USD 0.50 per barrel. And the last reason is the increase in some costs such as raw materials, laborers and engines. All of this led to a cost increase of USD 0.93 per barrel.

[Wei Fang, executive]

In summary, that -- although we have made this achievement in cost cutting, but it will -- with the recovery of the economy, the room for further cost reduction is limited. But we actually have set up this principle of all the cost can be reduced. [Foreign Language] So -- but still we are pressured for cost cutting for inflation, it also might be an issue for fourth quarter. Thank you.

[Operator]

The next question comes from Lau Ming Cho from [Foreign Language].

[Lawrence Lau, analyst]

It's Lawrence from BOCI. Just a question on your marketing segment. We noticed profitability in the third quarter further improved from the second quarter. So I would like to know that -- first of all, can you break down the product into the, say, domestic retailing and wholesaling operation and also international trading? And what do you expect for the fourth quarter for this segment? [Foreign Language]

[Unknown Executive]

[Interpreted] Thank you for the question. This is [ Edda Yao ]. I'll answer the question. So we all know that the first 3 quarters of this year, the marketing segment has -- there were changes such volatile oil prices and change in demand as well as the pandemic. But our marketing segment actively responded to the market situation and strengthened their marketing efforts to further increase the pricing fluctuation. And in the meantime, we also strengthened the combination between production and sales and effectively controlled the inventory level. The exports volume of our refined oil products was controlled, owing to the market situation and the change in supply [ was need ]. So in the first 3 quarters of this year, the domestic refined volume -- sales volume reached 77.84 million, decreased by 20.5%. And above that, the [indiscernible] gasoline, 33.345 million tons, and lifting of the kerosene is 55 -- 54 million tons and the diesel is by 36.47 million tons. And in terms of the international trade, in the third quarter, the trading volume of the whole company is 0.11 billion tons and recorded a pre-tax profit of CNY 4.49 billion. And in the first 3 quarters, the international trading volume is 0.348 billion tons and has a pre-tax profit of CNY 5.53 billion. And we -- as we mentioned before, with further control of the pandemic and we expect that the company will continue to recover. So we expect this marketing segment will continue to perform well in the fourth quarter. Thank you.

[Wei Fang, executive]

So the international, third quarter the trading profit -- EBIT was CNY 4.45 billion versus the EBIT of the marketing segment of CNY 7.9 billion. Thank you.

[Operator]

The next question comes from [ Won Ki Yen ] from [Foreign Language].

[Unknown Analyst]

[Foreign Language]

[Unknown Executive]

[Interpreted] The question was regarding the price floor mechanism as well as the rate for oil price regulation. As China enacts the price floor mechanism for oil products, we have also setup for response to oil price regulation, which means that when the international crude prices is lower than $40 per barrel, the oil product prices in domestic China will not be adjusted down. But instead, the unregulated amount of the prices will be included in a risk fund to be turned over to the State Treasury and used in a coordinated manner on energy conservation and emission cuts, improving the quality of oil products, ensure the supply security of petroleum as well as addressing volatile changes in the international oil prices. And by far, the policies has seen no changes.

According to South China Post, PetroChina has registered a provision for the risk fund totaling RMB 13.297 billion. Due to the intense competition in oil products market as well as being unable to fully push up the prices, asset quality does pose further impact on the profitability of PetroChina. Thank you.

[Unknown Executive]

As for the subsidies for the non-conventional natural gas, I'd like to take this question. For non-conventional natural gas, for PetroChina, it's mainly due to our contract management [indiscernible]. On June 2020, The Finance Ministry gave out a temporary policy on the management of a special fund geared to the investment of clean energy. And this special fund, it will be used to subsidize the production of shale gas, coalbed methane and tight gas.

And as for the [indiscernible] data, it's a benchmark. The benchmark is the production volume of last year. And for the new year, the incremental volume you produce will be subsidized. In general, the more you produce, the more you will be subsidized. As for the formula, it's quite complicated. It will be different in different kinds of resources and in different seasons. And you can find the detailed formula in the website of the Finance Department as well as in the RC. And for our company, for this year, based on this temporary policy for the subsidy of unconventional natural gas, we are excited to have a subsidy of around RMB 4 billion. [Foreign Language]

[Operator]

Next question comes from Tom from HSBC.

[Thomas Hilboldt, analyst]

[Audio Gap]

performance and a nice bounce off the bottom. Three quick questions. Firstly, how should we think about the operating profit in the pipeline segment in 2021 after the restructuring? Can you guide us on unit profitability in terms of total gas sales in Bcm or Bcf? Secondly, what are your expectations for equity accounted income from PipeChina in fourth quarter 2020 and in fiscal year 2021? And does PipeChina have a dividend policy? And do you expect to get a dividend and how much is it? Thirdly, what is the expected effective tax rate in fiscal year 2020 and fiscal year 2021 versus the 50% tax rate through the 9 months of 2020? And then lastly, can you confirm that your CNY 10 billion CapEx per annum over the next 5 years on green and low carbon? CNY 10 billion per annum, that seems relatively modest.

[Wei Fang, executive]

So Tom, to answer your third question, the CNY 10 billion is for the next 5 years, not for per annum. Maybe I made a mistake or maybe you didn't hear it correctly. So that's my answer to your third question. So first 2 question, can you translate? Thank you.

[Unknown Executive]

[Foreign Language]

[Wei Fang, executive]

To answer your second question, that we actually had in the Articles of Association -- as you know the PipeChina actually committed to pay dividends to no less than 30%. And we are currently in negotiation with the PipeChina because we have 2 Board seats at PipeChina. So we expect them to pay a higher dividend. But it will be determined by -- the dividend for 2021, it will be determined by their Board meeting and our Board members will participate. I will try to pass on your questions and your concerns to our directors and see if we could push for a higher dividend.

For your first question Madam [ Gdu ]?

[Unknown Executive]

[Interpreted] First, in terms of the PipeChina assets, now that these assets have been handed over to PipeChina and we hold a 29.9% equity in the company, in the future, we have set up a long-term coordination of production and operation mechanism with this company based on the agreements previously signed. And we expect the process to be very stable and sound and reliable based on the contracts we've signed. And we estimate the operating profit of these assets to be very sound and [ fit ].

As for the dividend of PipeChina, it will be no less than 30% of its yearly distributable profit. As for the specific details, it will be determined by the Board of Directors through its cash flow profile as well as its operating performance and go through an internal approval process. We believe it is also a rather good news for PetroChina. Thank you.

[Operator]

The next question comes from Ho Leo from [Foreign Language].

[Leo Ho, analyst]

This is Leo from Daiwa Capital Markets. First of all congratulate on successful completion of pipeline asset transfer, as well as getting a positive profit in third quarter this year. My first question is regarding production. We calculate the overseas oil and gas production in third quarter this year, which actually saw a 15% year-on-year decline and 30% quarter-on-quarter decline. Going forward, shall we expect the low level of overseas oil and gas production to be maintained in fourth quarter of this year? And if it really happen, if PetroChina is still confident about achieving 5% year-on-year growth in total gas production given bulk of the last year is actually quite a high base?

My second question is regarding CapEx. I saw that in 9 month -- I mean in the first 3 quarters of this year, CapEx in cash actually declined by only 7.8% versus a guidance of full year decline of roughly 22% to 23%. So shall we infer that by the end of this year we will actually see a CapEx in cash which is beating previous guidance? And also -- I also understand that fourth quarter last year is actually a high base. That's all for my questions. [Foreign Language]

[Wei Fang, executive]

Thank you. This is Wei Fang. I'll take your questions. As for the first question regarding the overseas natural gas and oil production, as you may have known that most of our contracts overseas are PSC or service contracts, which usually has a connection with oil price. When the oil price increase, the calculated production will decline. So this is a major reason for the overseas production decline. In the third quarter because with domestic natural gas production, we have some mainly facility repairing in the first quarter. So in the second quarter -- in the third quarter, our domestic natural gas production also declined. And also because of the low oil price, the import of natural gas price will be relatively low in the first quarter.

So in the third quarter, we are using this time window to have some further natural gas imports. That's also another reason for the natural gas decline. And for the long-term -- for this full year natural gas production target, I think that 5% to 6% of kind of target is achievable. And if you take a look at for the first 9 months, our natural gas production actually increased for 6.5% as a total and for domestic production actually increased about 8.2%. And the 5% to 6% kind of price, production increase mainly referring to domestic production. This is for the first question.

And for the CapEx, I think yearly, the cash CapEx is the only what we have made at the current level. But currently, we still maintain the full-year target by 22% to 25% kind of cut for the total CapEx for the year. And also because of the auditing yearly in the fourth quarter, some of the cost and the CapEx will be reflected yearly in the fourth quarter. If you take a look at the track record of previous years, you will see that yearly-- the fourth quarter CapEx reflection, yearly is the highest. Thank you.

[Unknown Executive]

[Interpreted] And Ms. [indiscernible] would like to add one point, you can see that the cash CapEx from first to third quarter still confirm that our pipeline operations and some pipeline assets have been handed over to PipeChina. Such profound [ details ] in pipeline construction will no longer be in the fourth quarter. And therefore, we believe we will continue to follow the targets and the guidelines set earlier this year. Thank you.

[Wei Fang, executive]

Thank you. I can see that there is no other further questions. So let me wrap up today's conference call and webcast. Dear shareholders, although we entered unprecedented challenge -- we have encountered unprecedented challenges in 2020, the company has come out stronger on the other side. The operation performance improved month-by-month since second quarter and all sectors achieved profitability in the third quarter, showing our strong resilience in a difficult situation.

With last 2 months left in front of us until the end of the year, I think the management will seize the current favorable opportunities and adhere to the market-orient and this performance-focused approach, fully implement our special action plan to improving -- for improving quality and efficiency and resolutely win the battle against the pandemic and seek out the profit. At the same time, we will continue -- we will combine the chain of global economic development and industry development chain to further align the company's 14th 5-year plan to provide a new roadmap for the green and high-quality development.

Lastly, I would like to draw the attention for the upcoming EGM on next Thursday, November 5, focusing on the renewal of continuing connected transaction with CNPC for the next 3 years. We have sent our shareholders the circular for the event. As we discussed in our last call, the continuing connected transaction benefit PetroChina. Through careful cost calculation and consideration, a reasonable amount of continuing connected transaction will be decided in line with the company development need, reflecting the trend of decline in the total amount of related transaction year-by-year and we would really appreciate if our shareholder could show your support by casting your vote for the resolution.

Again before we wind up, we all hope you're safe and healthy and prosperous and I hope to see you again soon in Hong Kong, Shanghai and Shenzhen, Beijing. Thank you.

[Operator]

Thank you, Mr. Wei. This concludes today's presentation. If you have any further inquiries, please feel free to contact us or send your questions to PetroChina Investor Relations via email at [e-mail]. Also, for today's presentation, we have a replay. Once again, thank you for joining us today. See you next time.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]