CNOOC Ltd (CEO) has reported full-year 2009 results. Earnings per ADR came in at $9.68 versus the Zacks Consensus Estimate of $10.00. Earnings missed our expectations due to lower oil price realizations and higher operating costs.

Total revenue fell more than 16% to $15.4 billion, as its average selling price of crude oil fell 32.2% to $60.61 per barrel.

Estimate Revisions Trend

With the uptrend in oil prices, we see a mixed bag in estimate revisions. For the last 30 days, 2 of the 5 analysts covering the stock raised the estimate for the full fiscal 2010 while another 2 lowered it. However, in the last 7 days, no up or downside movements were noticed.

Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $15.67 per ADR, which is well above the full fiscal 2009 earnings of $9.68.

Operational Performance

The company’s net production of oil and gas reached 227.7 million barrels of oil equivalent (BOE), up 17.2% over the previous year. This increase was driven by the contribution from various fields that came online in recent years.

While oil price realizations were down 32.2%, average realized natural gas prices increased 4.6% from the previous to $4.01 per thousand cubic feet. Operating expenses increased 25% to $1.83 billion, primarily on the back of costs related to the commencement of new oil and gas field.

Exploration capital expenditure for the year increased 13.8% to $1.07 billion, while development and production capex increased 19.2% and 44.7% to $4.16 billion and $0.99 billion, respectively. At the end of 2009, CNOOC had cash balance of $3.32 billion and long term debt of $2.72 billion.

Outlook

Following a production growth of 17.2% and 13% in 2009 and 2008, respectively, the company is now expecting 21%−28% production growth in 2010 and a compounded annual growth rate of 6%−10% for the next five years.

Apart from a solid upstream exposure in the offshore China, the company is aggressively pursuing various international opportunities. With the recent Argentine joint venture, we believe the company will get to expand in Latin America and build an asset portfolio that has both production growth potential and exploration upside. We currently recommend an Outperform rating for CNOOC Ltd.
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