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Chinese offshore giant CNOOC Ltd. (CEO - Analyst Report) reported third quarter 2013 total revenue of 56.14 billion yuan ($9.1 billion), up almost 15.9% from the year-earlier level. Out of the total revenue, approximately 92% came from oil and liquids sales, which amounted to 52.7 billion yuan ($8.5 billion), up 17.0%. The results were driven by higher oil price realizations.

Production

In the third quarter, CNOOC’s net production was 103.4 million barrels of oil equivalent (MMBoe), up approximately 17.8% from the year-ago level. Out of the total production, over 80% comprised oil and liquids. The improvement was mainly attributable to the production contribution from the acquisition of Nexen Inc. and new oil and gas fields.

Without Nexen's output, production was flat year over year. 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 increased 1.5% year over year to $106.26 per barrel. Realized gas price decreased 6.9% to $5.43 per thousand cubic feet (Mcf) from the year-ago level.

Capital Expenditure

During the third quarter, CNOOC’s capital expenditure (excluding Nexen’s impact) was 17.7 billion yuan, representing an increase of 18.2% from the year-earlier period, mainly due to the increase in development projects. Nexen's capital expenditure during the quarter was around 4.7 billion yuan.

Guidance

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

During the quarter, CNOOC made 5 discoveries and successfully completed the appraisal of 15 wells. Of these, Luda 5-2 North is a mid-sized new discovery and Kenli 9-5/9-6 was proved to be a mid-sized oil and gas structure.

The company currently holds a Zacks Rank #3 (Hold). However, the Zacks Ranked #1 stocks of Stone Energy Corp. (SGY - Analyst Report), Linn Energy LLC (LINE - Snapshot Report) and Enerplus Corp. (ERF - Snapshot Report), are expected to outperform the market over the next few months.

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