CNOOC’s LNG Deal – Analyst Blog

CNOOC Ltd. (CEO) has signed an agreement with BG Group of Australia for the purchase of liquefied natural gas (LNG) from Queensland Curtis LNG (“QCLNG”) facility on Curtis Island, Australia. As per the agreement, CNOOC will purchase 3.6 million tons of LNG annually for next 20-year period. CNOOC will also become a 10% equity investor in QCLNG liquefaction Train 1.

 

In addition, CNOOC will buy 5% of BG’s interest in the coal-seam gas (also known as coal-seam methane) reserves and resources at the Surat Basin in Queensland. Book value of the assets in question is approximately $270 million.

 

Production of coal-seam gas has been gaining traction for various environmental benefits. The gas is normally trapped in stores of methane hundreds of meters below the Earth’s surface. It doesn’t produce sulfur dioxide or particulates and emits 50% less carbon-dioxide than coal.

 

Another deal for coal-seam gas has also been signed earlier this week. Royal Dutch Shell (RDS.A) and PetroChina (PTR) have agreed to buy most of the Australian assets of coal-seam gas producer Arrow Energy Ltd. in a $3.15 billion deal.

 

With an attractive LNG investment strategy, CNOOC is playing a major role in China’s pursuit for a greater percentage of gas in its energy mix. The company is also significantly importing LNG into China, with three LNG terminals in operation along the country’s coastline and plans for several more.

 

We continue to like CNOOC Ltd. given the company’s strong growth profile, exclusivity in the offshore China region, low cost business model and attractive LNG investments. We are currently Neutral on CNOOC ADRs.