CNOOC 3Q Sales Rise

Chinese offshore giant CNOOC Ltd. ( CEO - Analyst Report ) reported third quarter 2012 total revenue of 48.96 billion yuan ($7.73 billion), up almost 5.3% from the year-earlier level. Out of the total revenue, approximately 92% came from oil and liquids sales, which amounted to 45.05 billion yuan ($7.11 billion), up 5.0%. The results were driven by strong oil price realizations.

Production

China’s dominant producer of offshore crude oil and natural gas, CNOOC achieved net production of 87.8 million barrels of oil equivalent (MMBoe), up approximately 8.5% from the year-ago level. Of the total production, more than 79% was oil and liquids and the remaining 21% constituted natural gas. The positive performance was mainly attributable to contribution from the latest projects and new development wells. Overseas production and a steady performance from the already operational oil and gas fields also added to the upsurge.

The company’s gas volume dropped 8.2% to 104.7 billion cubic feet (Bcf) from the year-ago level of 114 Bcf, while its liquid production surged nearly 13.4% year over year to 69.6 million barrels in the three-month period.

Price Realizations

The company’s average realized oil price increased 2.9% year over year to $104.74 per barrel, while its realized gas price increased nearly 17.4% to $5.83 per thousand cubic feet (Mcf) from the year-ago level of $5.18 per Mcf.

Capital Expenditure

CNOOC spent 15.0 billion yuan as capital expenditure, representing an increase of 46.7% from the year-ago level.

During the quarter, CNOOC was busy drilling eight successful appraisal wells offshore China. Kenli 9-1 and Dongfang 13-2 were among them.

Guidance

For 2012, CNOOC expects to generate production volume between 335-345 MMBoe primarily driven by strong historical contribution from the fourth quarter.

Our Take

We maintain our long-term Neutral recommendation on CNOOC ADRs. We remain optimistic on CNOOC as we believe the company’s 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’s plan to acquire the Canadian energy producer Nexen Inc. ( ) for approximately $15.1 billion in cash would raise its proven reserves by 30%. Should the deal go through, it will be China’s biggest foreign takeover so far.

The company currently holds a Zacks #3 Rank, equivalent to a short-term Hold rating.