Chinese offshore giant CNOOC Ltd. (CEO) reported third quarter 2011 total revenue of 46.52 billion yuan ($7.27 billion), up almost 23% from the year-earlier level. Out of the total revenue, more than 92% came from oil and liquids sales, which amounted to 42.90 billion yuan ($6.68 billion), up nearly 24%. The results were driven by strong oil price realizations.
Production
CNOOC achieved net production of 80.9 million barrels of oil equivalent (MMBoe), down 9.1% from the year-ago level of 89 MMBoe. Of the total production, almost 76% was oil and liquids. The shortfall in production can be traced back to the natural decline in certain existing fields and deferral of production of Penglai 19-3 oilfield in Bohai Bay.
The company’s gas volume swelled 5.8% to 114.0 billion cubic feet (Bcf) from the year-ago level of 107.7 Bcf, while its liquid production plunged 12.8% year over year to 61.4 million barrels in the reported quarter.
Price Realizations
The company’s average realized oil price shot up 50.3% year over year to US$112.04 per barrel, while its realized gas price grew 20.0% to US$5.18 per thousand cubic feet (Mcf) from the year-ago level of $4.32 per Mcf.
Capital Expenditure
CNOOC’s capital expenditure for the third quarter was approximately 10.55 billion yuan (US$1.64 billion), representing an increase of 28.8% from the year-ago level due to a busier workload with pipeline development and extensive exploration activities. It was an eventful quarter for CNOOC with 2 new finds and 9 successful appraisal well drillings.
Guidance
Earlier, CNOOC had lowered its annual production expectation to 331–341 MMBoe from its previous guidance 355–365 MMBoe. The company mainly generates profits 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, announced in November 2010, because of the acquisition of stakes in Argentina's Pan American Energy LLC from BP plc (BP), had compelled China's top offshore oil and gas producer to become more cautious on its second half results.
Our Take
CNOOC Ltd. is one of the three oil companies in China and one of the largest independent oil and gas exploration and production companies of the world. It is China’s dominant producer of offshore crude oil and natural gas and engages in exploration, development, production, and sale of crude oil, natural gas, and other petroleum products.
Despite new discoveries as well as robust exploration activities, volumes contracted mainly as production was disrupted in the Penglai 19-3 oilfield in Bohai Bay. In June, the Penglai 19-3 oilfield –– China's biggest offshore oilfield –– experienced an oil spill that caused environmental damage and polluted approximately 840 square kilometers of water.
ConocoPhillips China Inc., a Chinese affiliate of ConocoPhillips (COP) is the operator of the field with a 49% interest while CNOOC owns the remaining 51% interest. The oil leak has led to total production losses of 62,000 barrels per day.
While we remain optimistic on the company with the start-up of three domestic fields slated for the upcoming quarter, we also see the recent oil spill to remain an overhang on its full-year production target.
CNOOC ADRs currently hold a Zacks #4 Rank, which is equivalent to a short-term Sell rating.
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