EUR 850.00 For Business Accounts Only

Morningstar | Lowering CNOOC’s and PetroChina’s FVEs on Weaker Oil Prices; Bigger Buffers Needed to be a Buyer

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.CNOOC also represents China's rights to potentially lucrative offshore reserves in the South China Sea and it enables CNOOC to avoid costly exploration expenses. However, an increasing share of its own independent activities and assets outside China have raised CNOOC's all-in costs since 2008. That said, the company has been cutting costs amid the low oil price environment since 2014, and we think CNOOC will remain profitable going forward following the recovery in oil prices and given its low all-in cost of below $40 per barrel.Domestic conventional crude oil and gas remain crucial to CNOOC's profitability. The Bohai Bay operation is the company's most important asset, making up 41% of crude oil production and 25% of reserves.We have concerns about the company's falling reserve life over the past few years, but we are glad that CNOOC’s reserve life was extended to 10.2 years in 2018 from 8.1 in 2016, largely due to new projects (Liza and Libra), discoveries, and economic revisions (Long Lake). We expect CNOOC to continue investing in exploration activities, as well as scouting for high-quality oil and gas assets globally.CNOOC has access to financing from Chinese state-owned banks and an ability to tap cross-border bond markets, so it benefits from access to low-cost debt.