Morningstar | CNOOC’s Operating Statistics Slightly Below Expectations on Weather Issues; Shares Fairly Valued
No-moat CNOOC's third-quarter operating statistics were slightly below our expectations but we raise the firm’s fair value estimate to HKD 14.70 per share (USD 188 per ADR) from HKD 13.50 per share (USD 174 per ADR), after considering our higher near-term Brent oil price assumptions, lower capital expenditure in 2018, and the appreciation of the U.S. dollar. Our long-term oil price forecast of USD 60 per barrel is unchanged, and we think CNOOC is currently fairly valued with strength in oil prices largely priced in.The company’s first nine months oil & gas output was 351 million barrels of oil equivalent, or mmboe, down 0.6% year over year, trailing our forecast as production was affected (about 3.1 mmboe) by typhoons in the third quarter, especially Typhoon Mangkhut. We cut our 2018 output estimate by about 1% but we continue to expect faster production growth going forward on the back of new projects coming on line. The firm’s average oil selling price rose 36% year over year to USD 68.70 per barrel while average gas selling price was up 10% year over year to USD 6.36 per thousand cubic feet.
Despite third quarter’s capital expenditure rising 30% year over year, cumulative nine months spending of CNY 36 billion was significantly behind management’s full-year guidance of CNY 70 billion to CNY 80 billion. Management thinks the target will be hard to achieve due to delays in certain projects, such as Uganda, but the firm will be aiming to hit the lower end of the range. We believe CNOOC is unlikely to meet our original assumption of CNY 70 billion capital expenditure in 2018 and we lower this to CNY 60 billion. That said, we expect capital expenditure to rise by 23% in 2019 given the conducive oil price environment.
Meanwhile, although costs were not provided, management guided that all-in cost is flat compared with first-half 2018’s USD 31.83 per barrel. We have modeled the firm’s all-in cost to gradually rise to USD 33 by 2022.
Cnooc is an investment holding company. Through its subsidiaries, Co. is principally engaged in the exploration, development, production and sale of crude oil, natural gas and other petroleum products in offsore of the People's Republic of China. Co.'s core operation areas are Bohai, Western South China Sea, Eastern South China Sea and East China Sea in offshore China. Co. has oil and gas assets in Asia, Africa, North America, South America, Oceania and Europe. As of Dec 31 2016, net proved reserves for oil, gas, and synthetic oil were 2,015.4 million barrels, 7,486.1 billion cubic feet, and 7,486.1 million barrels, respectively.
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