CNOOC Oil Project Duo Comes Online

Chinese energy giant CNOOC Limited’s ( CEO - Analyst Report ) oilfield projects — the Panyu 4-2/5-1 oilfield adjustment project and the Panyu 4-2/5-1 oilfield project — have commenced production. The oilfields are located in the Pearl River Mouth Basin of South China Sea.

Situated in an average water depth of about 100 meters, the Panyu 4-2/5-1 adjustment project was planned to help the existing facilities in expanding the oil field. The company expects the project, in which it holds 75.5% operational interest, to reach peak production in 2014. CNOOC’s associate partner in the Panyu 4-2/5-1 project is Burlington Resources China with a 24.5% share.

The other oilfield — Liuhua 4-1 — remains fully operated by the company and acts as the operator. In an average water depth of about 268 meters, the Liuhua 4-1 oilfield is scheduled to reach its peak production by 2013. CNOOC made a new subsea production system taking into consideration the characteristics of Liuhua 4-1.

Meanwhile, CNOOC — China’s biggest offshore oil and gas producer — said that it expects its proposed $15.1 billion acquisition of the Calgary, Alberta-based energy producer Nexen Inc. ( ) to close in the first quarter of 2013.

Although the deal was planned to be wrapped up by the fourth quarter of 2012, the company’s representative pointed out that it still waits for the U.S. government consent.

As the world's second-largest economy, China has a huge energy requirement. The Nexen acquisition bid foregrounds not only the bold attempt by CNOOC but also by other Chinese biggies to make deeper inroads into the international energy markets for the specific aim of meeting domestic demand. We note that the CNOOC bid for Nexen marks the biggest Chinese takeover attempt so far.

We believe CNOOC’s growth will be augmented by significant capital injection for upstream activities in the next five years. The latest start-up of projects like the Panyu 4-2/5-1 and the Liuhua 4-1 are part of its aforesaid agenda. Again, we remain positive on the company’s performance, which reflects its premium assets portfolio, excellent execution strategy, unique position as a pure oil player and potential transactions in the merger and acquisition space.

We maintain our long-term Neutral recommendation on CNOOC. The company currently retains a Zacks #3 Rank (short-term Hold rating).