China’s offshore giant CNOOC Ltd. (CEO) completed the acquisition of an additional 24.5% in a block in South China Sea from U.S. independent Devon Energy Corp (DVN) for $515 million ($370 million after tax). Block 15/34 is located in the Pearl River Mouth Basin of the South China Sea, roughly 200 kilometers south of Hong Kong, at a water depth of 100 meters. The deal was first agreed upon in late April.
Moreover, CNOOC has made a significant oil discovery in the Enping Trough of the Pearl River Mouth basin in the eastern part of the South China Sea with a considerable reserves base. Upon confirmation, this could be the largest discovery made in recent years in the shallow waters of the South China Sea.
The South China Sea is one of CNOOC’s major production areas in offshore China. We believe that the contribution from the South China Sea is crucial for CNOOC’s plan to double the domestic hydrocarbon supply by 2020. In addition to several domestic initiatives, international inventory of development projects will also aid the company to sustain its long-term growth.
We believe CNOOC’s underlying valuation will gain support on the back of its premium assets portfolio, excellent execution strategy and unique position as a pure oil player. Consequently, we maintain our Outperform recommendation.
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