Chinese offshore giant – CNOOC Ltd. (CEO - Analyst Report) – has issued a tender to invite foreign firms to bid for its oil and gas blocks in the East and South China Sea.
The company would put under the hammer 25 offshore blocks for foreign participation in 2013. Of this, 17 are in the South China Sea, 3 in the East China Sea and 5 in the Yellow and Bohai Sea. The move is crucial for fulfilling the company’s ambitious goal of doubling its oil and gas production by 2020 and tripling it by 2030 from the 2010 levels.
This is in sync with the dragon’s strategy of swaying over the China Sea despite opposition from neighbors. On the one hand, traditional rival Japan claims the tiny, uninhabited islands in the East China Sea known as Senkaku in Japan and Diaoyu in China. On the other hand, Vietnam, the Philippines, Taiwan, Malaysia, and Brunei aren’t giving the dragon a walkover in the South China Sea.
In June, CNOOC called for foreign bids to jointly develop 9 blocks in the western part of the South China Sea inciting its relations with Vietnam.
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.
CNOOC is one of the three leading oil companies in China and among 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 the exploration, development, production as well as sale of crude oil, natural gas, and other petroleum products.
Notably, CNOOC is the only company permitted to conduct exploration and production activities with international oil and gas companies off the shores of China. The Chinese government owns a 64.41% stake in the company by virtue of its ownership of CNOOC (China National Offshore Oil Corporation).
In recent times, the Chinese offshore giant has successfully countered the volatile oil price environment on the strength of its higher production. While we continue to be positive on the long-term growth options for CNOOC, the loss of price realization momentum and absence of catalysts make us apprehensive in the near term. As is the case with other exploration and production companies, results for CNOOC are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could fall further going forward, thereby affecting the company’s revenues, earnings and cash flow.
CNOOC carries a Zacks Rank #3 (Hold). However, there are other Zacks Ranked #1 (Strong Buy) stocks – Devon Energy Corporation (DVN - Analyst Report), Dril-Quip, Inc. (DRQ - Analyst Report) and Resolute Energy Corp. (REN - Snapshot Report) – that are expected to perform more impressively over the short term.