EUR 850.00 For Business Accounts Only

Morningstar | CNOOC's 1Q Operating Statistics Broadly In Line; Shares Fairly Valued

No-moat CNOOC's first-quarter operating figures were largely in line with our expectations. After factoring in higher near-term oil price assumptions and our updated foreign-exchange forecasts, we maintain our fair value estimate of HKD 14.50 per share ($186 per ADR). Our midcycle oil price forecast of $60 per barrel is unchanged. We think CNOOC’s shares are fairly valued at this level, with the recent strength in oil prices largely priced in.

CNOOC’s oil and gas sales revenue declined 1.2% year over year to CNY 42 billion, with the lower average oil selling price of $60.78 per barrel (down 4% year over year) mitigated by a 6% year-over-year increase in average gas selling price to $6.88 per thousand cubic feet.

On the production front, the firm’s output in the first quarter was flat year over year at 120.1 million barrels of oil equivalent, accounting for 25% of our full-year estimate. Production from offshore China increased 2.3% year over year on the back of contributions from newly commenced projects, but overseas output declined 4.2% year over year, largely attributable to falling production from Iraq and Indonesia. Management remains confident in achieving full-year production target of 480-490 million boe, which is only around a 1%-3% increase over 2018.

While the firm did not provide data on costs, management guided that they are well contained with operating expenses largely stable in the first quarter versus the second half of 2018. We believe the company will remain profitable at current oil prices, given CNOOC's low all-in cost of below $40 per barrel.

CNOOC’s capital expenditure rose 46% year over year to CNY 14.1 billion in the first quarter due to the increased workload. This still accounts for less than 25% of the firm’s full-year budget, although management expects higher spending in the following quarters. Our unchanged estimate of CNY 73.5 billion in 2019 is at the lower end of company guidance of CNY 70 billion-80 billion.