CNOOC Grows YoY on Strong Price - Analyst Blog

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Chinese offshore giant CNOOC Ltd. (CEO) reported 2011 company's earnings per share of 1.57 yuan ($24.26 per ADS), which beat the Zacks Consensus estimate of $23.95. The company's total revenue were 189.28 billion yuan ($29.24 billion), up almost 30% from the year-earlier level. The results were driven by strong oil price realizations.

Production

CNOOC achieved net production of 331.8 million barrels of oil equivalent (MMBoe), up 0.7% from the year-ago level of 329.5 MMBoe. The company saw a marginal increase in production due to various challenges including deferral of production at Penglai 19-3 oilfield in Bohai Bay.

Price Realizations

The company's average realized oil price shot up 40.8% year over year to US$109.75 per barrel, while its realized gas price grew 14.7% to US$5.15 per thousand cubic feet (Mcf) from the year-ago level of $4.49 per Mcf.

Capital Expenditure

In 2011, CNOOC's capital expenditure was approximately US$6.42 billion, representing an increase of 26.7% from the year-ago level. Of the total capex, around $1.46 billion was spend towards exploration while $3.66 billion and $1.18 billion was expended on development and production, representing increases of 31.1% and 50.8%, and a decrease of 18.0%, respectively. It was quite an eventful year for CNOOC with 13 new finds and 18 successful appraisal well drillings.

Guidance

The company targets net production in the range of 330-340 MMBoe for 2012 compared to the 331-332 MMBoe range projected for 2011. CNOOC expects four new projects in offshore China to be commissioned in 2012. Among these, production from one of the adjustment projects at Panyu 4-2/5-1 is expected to hit the 57 thousand barrels per day mark by 2014, representing the significant potential of the firm's producing fields.

With respect to exploration, CNOOC plans to expand its independent deepwater exploration into new regions. In a bid to achieve the target, the company plans to drill an aggregate of 114 exploration wells comprising 3 independent deepwater wells in South China Sea.

The company also plans to obtain seismic data for 18,300 kilometers 2-Dimensional (2D) seismic data and 19,200 square kilometers 3-Dimensional (3D). CNOOC is aiming to exceed reserve replacement ratio (RRR) over 100% in 2012.

Our Take

CNOOC Ltd. is one of the three oil companies in China and one of the largest independent oil and gas exploration and production companies of the world. It is China's dominant producer of offshore crude oil and natural gas and engages in exploration, development, production, as well as sale of crude oil, natural gas, and other petroleum products.

Further, given the abundance of natural gas reserves, Chinese energy explorers have been in quest for shale technology and expertise. This has facilitated stake purchases in overseas fields. In this context, it is noteworthy that since the beginning of 2010, CNOOC has bid for at least $16 billion of assets, including interests in Chesapeake Energy Corporation's (CHK) Niobrara and Eagle Ford shale projects.

Despite new discoveries as well as robust exploration activities, volumes increased marginally mainly as production was disrupted in the Penglai 19-3 oilfield in Bohai Bay. ConocoPhillips China Inc., a Chinese affiliate of ConocoPhillips (COP) is the operator of the field with a 49% interest while CNOOC owns the remaining 51% interest.

While we remain optimistic on the company with the start-up of two new projects in 2011 in offshore China, we also foresee the recent oil spill to remain an overhang on its full-year production target.

CNOOC ADRs currently hold a Zacks #3 Rank, which is equivalent to a short-term Hold rating. Longer term, we maintain our Neutral recommendation on the stock.


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