CNOOC Profits From Higher Production

Higher crude oil and natural gas prices and a 15% increase in production drove CNOOC Limited's (CEO - Analyst Report) third-quarter results. The significant volume growth was due to two new projects that came on stream during the period.

Despite the negative macro backdrop, CNOOC plans to stick to its original spending plans, providing strong support to its production growth profile. Our continued favorable view of CNOOC Ltd. shares reflects the company’s positive production growth profile, exclusivity in the offshore China region, and LNG investments. We have lowered our estimates and price objective to reflect a lower commodity-price deck.

We rate the shares a Buy.

Based on most conventional valuation metrics, the ADRs are attractive here relative to the Chinese and other emerging market players. Our new $120 price objective, reduced from $155 before, is based on a 2009 P/E multiple of 9.3x, still at a discount to its peer group.

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