China’s dominant producer of offshore crude oil and natural gas, CNOOC Limited (CEO) reported robust first-half 2011 results. Net profit in the period increased 51.4% year over year to 39.343 billion yuan (US$6.01 billion), or 0.88 yuan per share ($13.44 per ADS), buoyed by strong oil price realizations and production growth (exchange rate: 1.00 yuan = US$0.1527, 1 ADS = 100 shares).
Total revenue in the period was 97.54 billion yuan (US$14.89 billion), up 44.3% from the year-earlier level. Oil and gas sales were 97.03 billion yuan ($14.82 billion), up 45%.
Production
CNOOC achieved net production of 168.7 million barrels of oil equivalent (MMBoe), up 12.9% from the year-ago level. Of the total production, almost 79% was oil and liquids. The production growth can be credited to the new oilfields and development wells, accompanied by newly acquired projects since 2010.
The company’s gas volume swelled 23.5% to 208.2 billion cubic feet (Bcf) from the year-ago level of 168.6 Bcf, while its liquid production rose 10.6% year over year to 133.2 million barrels in the six-month period.
Price Realizations
The company’s average realized oil price shot up nearly 41% year over year to US$108.16 per barrel, while its realized gas price grew 15.5% to US$4.92 per thousand cubic feet (Mcf) from the year-ago level of $4.26 per Mcf.
Capital Expenditure
CNOOC spent approximately US$2,348 million in capital expenditure during the first half of 2011, representing an increase of 10% from the year-ago level. The company has planned for a busier workload in the second half of 2011.
It was an eventful six months for CNOOC with 6 new finds and 18 successful appraisal well drillings. The Wushi 17-2 project in Wushi Sag in the Western South China Sea was discovered along with two new discoveries Qinhuangdao 33-2 and Qinhuangdao 33-3 following the discovery of Qinhuangdao 33-1 South in the Shijiutuo uplift area. Other key projects are also on track.
Guidance
CNOOC has lowered its annual production expectation to 331–341 MMBoe from the earlier 355–365 MMBoe range. The company mainly generates its profit from exploration and production. Hence, the shutdown of two platforms in Bohai Bay (due to oil leaks) and delays in closing the $7.1 billion purchase deal – which was announced on November 2010 – related to the acquisition of stakes in Argentina's Pan American Energy LLC from BP plc (BP), have compelled China's top offshore oil and gas producer to become more cautious about its second half results.
The pending deal for the Bridas project would slash annual production by 19–20 MMBoe while an oil spill in Bohai Bay has resulted in production losses of 22,000 barrels per day since July 13.
Our Take
On the whole, 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. CNOOC’s 2010 reserve replacement ratio of 202% was the highest since 2003 and above its targeted 100%.
During the first half of 2011, the company made significant development in its scheduled project agenda. CNOOC acquired a 33.3% undivided interest in Chesapeake Energy Corporation's (CHK) Niobrara project as well as signed a deal to buy OPTI Canada Inc. (“OPTI”) for a total consideration of $2.1 billion, marking a step ahead in the expansion of its oil sands business. Additionally, CNOOC purchased one-third interest in each of Exploration Areas 1, 2 and 3A in Uganda.
In a favorable oil price environment, the Chinese offshore giant posted a commendable performance both in terms of production growth and cost control measures. The company also mentioned that it will be proactive on exploration investments.
CNOOC ADRs currently hold a Zacks #3 Rank, equivalent to a short-term Hold rating.
BP PLC (BP): Free Stock Analysis Report
CNOOC LTD ADR (CEO): Free Stock Analysis Report
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment