Earlier today, CNOOC Ltd. (CEO) reported results for the six months ended June 30. Net income for the period was 12.4 billion yuan ($1.82 billion), down 55% from 27.54 billion yuan ($3.9 billion) a year earlier. The steep fall in net income was primarily due to significantly lower oil prices despite excellent production performance.
The average realized oil and gas prices for the period were $49.35 per barrel and $3.90 per thousand cubic feet, respectively.
During the first half, the company’s crude oil and natural gas production reached 87.3 million barrels and 106.3 billion cubic feet, respectively. Total net oil and gas production reached 105.8 million barrels-of-oil-equivalent (BOE), up 15.2% year over year. Net oil and gas production from overseas reached 15.0 million BOE, up 38.9% year over year.
CEO’s overseas production was boosted by successful start up of Akpo oilfield and Phase I of OML130 (both in Nigeria) as well as several other deepwater projects. Besides, Tangguh LNG project in Indonesia also came online in early July. In offshore China, the company’s independent oil and gas fields including Panyu 30-1, Bozhong 28-2 South and Qinhuangdao 33-1 have commenced production successfully. We believe that the commencement of these projects will be an important driver for its medium- and long-term growth.
The company’s low cost operating model is also a competitive advantage. The all-in cost was $19.50 per barrel, down 1.4% from last year. However, unlike its bigger competitors such as PetroChina (PTR) and Sinopec (SNP), CNOOC has no significant refining exposure and could not reap the benefits of gaining refining margins driven by fuel price hikes in China, twice in the month of June.
We believe that the commencement of major projects, attractive LNG investments, solid production outlook and satisfactory exploration results (10 new discoveries and 8 successful appraisals in the first half) act as catalysts for the company’s growth trajectory. Consequently, we maintain our Outperform rating.

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