China’s dominant producer of offshore crude oil and natural gas, CNOOC Limited‘s (CEO) first quarter 2012 revenue jumped 4.1% year over year to 49,281.6 million yuan (US $7,796.3 million), mainly on the higher price realization.
Production
CNOOC achieved net production of 79.8 million barrels of oil equivalent (MMBoe), down approximately 6.6% from the year-ago level. Of the total production, almost 80% was oil and liquids and the remaining 20% constituted natural gas. This underperformance was related to the overhaul of Penglai 19-3 oilfield production at Bohai.
The company’s gas volume dropped nearly 5% to 92.8 billion cubic feet (Bcf) from the year-ago level of 97.6 Bcf, while its liquid production declined more than 7% year over year to 63.8 million barrels in the three-month period.
Price Realizations
The company’s average realized oil price increased 19.4% year over year to $120.79 per barrel, while its realized gas price grew 19.8% to $5.88 per thousand cubic feet (Mcf) from the year-ago level of $4.91 per Mcf.
Capital Expenditure
CNOOC spent approximately 9,641.7 million yuan (US $1,525.3 million) as capital expenditure, representing a rise of 58.2% from the year-ago level.
It was a busy quarter for CNOOC with five new finds and five successful appraisal well drillings offshore China. The Kenli 2-1 at Bohai, Penglai 9-1 and Dongfang 13-2 were among them.
Our Take
We remain optimistic on CNOOC as we believe the company’s performance reflects its premium assets portfolio, excellent execution strategy, unique position as a pure oil player and potential transactions in the merger and acquisition space.
During the quarter, the company made significant development in its scheduled project agenda. CNOOC and Tullow Oil plc wrapped up acquisition agreements for the latter’s one-third interests in each of Exploration Areas 1, 2 and 3A in Uganda.
The company made significant exploration development during the quarter, mainly by gaining a mid to large sized new oil discovery and successful appraisal of a large oilfield in Bohai. Based on the company’s rich resource base, CNOOC has created a solid foundation for future growth.
However, weak quarterly volume owing to the deferral of production of Penglai 19-3 oilfield in Bohai Bay remains our concern. The Penglai 19-3 field remains operated by U.S. major ConocoPhillips (COP) and the company has not yet received the government nod to reopen the oilfield in eastern China’s Bohai Bay.
Despite the weak volumes, CNOOC believes that it will be able to maintain a CAGR of 6-10% from 2011 to 2015 on the back of various organic and inorganic ventures.
We maintain our long-term Neutral rating on CNOOC ADRs. The company currently holds a Zacks #3 Rank, equivalent to a short-term Hold rating.
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