CNOOC, ROC to Share Production

CNOOC Limited (CEO - Analyst Report) announced that its parent company − China National Offshore Oil Corp. (“CNOOC”) − has inked a production-sharing contract with an affiliate of Australia’s Roc Oil Co. on an oilfield area in the Bohai Sea.

Per the agreement, the subsidiary − Roc Oil (Bohai) Company − will carry out three dimensional geological survey and drill wells on the 09/05 block during the first phase of exploration. Located 31 miles (50 kilometers) southeast of Tianjin, the block covers a total area of approximately 137 square miles (355 square kilometers) at a depth of 4–10 meters under water.

The agreement enables the country’s largest offshore oil producer − CNOOC − to own up to 51% working interest in any commercial discovery in the block, while ROC is to bear all expenditures for exploration.

CNOOC Ltd. is one of the three leading oil companies in China and one of the largest global independent oil and gas exploration and production companies. It is China’s dominant producer of offshore crude oil and natural gas and engages in the exploration, development, production and sale of crude oil, natural gas and other petroleum products.

The company’s oil and gas properties are located in four major production areas in offshore China: Bohai Bay, western South China Sea, eastern South China Sea and the East China Sea.

CNOOC’s first quarter 2012 production experienced an approximately 6.6% decline mainly on account of the overhaul of Penglai 19-3 oilfield production at Bohai. However, during the quarter, the company made significant development in its scheduled project agenda. CNOOC and Tullow Oil plc wrapped up acquisition agreements for the latter’s one-third interests in each of Exploration Areas 1, 2 and 3A in Uganda.

Although the company’s weak production volume in the last quarter remains our concern, its performance reflects its premium assets portfolio, excellent execution strategy, unique position as a pure oil player and potential transactions in the merger and acquisition space. CNOOC also believes that it will be able to maintain a CAGR of 6–10% from 2011 to 2015 on the back of various organic and inorganic ventures.

We maintain our long-term Neutral rating on CNOOC ADRs. The company, which competes with China Petroleum & Chemical Corp. (SNP - Analyst Report) currently holds a Zacks #3 Rank, equivalent to a short-term Hold rating.