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China’s dominant producer of offshore crude oil and natural gas, CNOOC Limited’s (CEO - Analyst Report) first half 2013 net profit increased 7.9% year over year to 34.38 billion yuan (US$5.58 billion), or 0.77 yuan per share, attributable to growth in production volume.

Total revenue in the period was 139.03 billion yuan (US$22.55 billion), up 17.6% year over year. Oil and gas sales were 110.80 billion yuan ($17.97 billion), up 15.8% year over year.

Production

In the first half of 2013, CNOOC achieved net production of 198.1 million barrels of oil equivalent (MMBoe), up approximately 23.1% from the year-ago level. The improvement was mainly attributable to the production contribution from the acquisition of Nexen Inc, the new oil and gas fields, resumption of production at Penglai 19-3 oilfield, and ramp-up of Eagle Ford and Missan oilfields. Without Nexen's production output, the production growth was 7.7%. Overseas production and steady performances by the already operational oil and gas fields also aided the increase.

Price Realizations

The company’s average realized oil price decreased 10.9% year over year to $104.20 per barrel. Realized gas price decreased 3.7% to $5.68 per thousand cubic feet (Mcf) from the year-ago level.

Capital Expenditure

CNOOC’s capital expenditure in the first half of 2013 was $5.21 billion, representing an increase of 34.8% from the year-earlier period.

Guidance

CNOOC’s full-year 2013 production target of 338–348 mm barrels of oil equivalent (Boe) (excluding Nexen) remains unchanged. Nexen’s production contribution for 2013 is expected to reach approximately 59 mm boe.

Our Take

We remain optimistic on CNOOC as its performance reflects its premium assets portfolio, excellent execution strategy, unique position as a pure oil play and potential transactions in the merger and acquisition space.

Again, CNOOC completed the acquisition of Canadian energy producer Nexen Inc. for approximately $15.1 billion in cash, in Feb 2013. The company in the first half of 2013 made 7 discoveries and announced 18 successful appraisal wells offshore China, and 1 discovery overseas.

The company currently holds a Zacks Rank #3 (Hold). However, the Zacks Ranked #1 stocks of Abraxas Petroleum Corp. (AXAS - Snapshot Report), Oiltanking Partners, L.P. (OILT - Snapshot Report), and Seacor Holdings Inc. (CKH) are expected to outperform the market over the next few months.

 

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