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Chinese offshore giant – CNOOC Ltd. (CEO - Analyst Report) reported 2012 earnings per share were 1.43 yuan (23 cents). Net profit was 63.69 billion yuan ($10.1 billion), down 9.3% from the prior year. The decrease was mainly because of increased tax and exploration expenses.

The company’s total revenue was 194.77 billion yuan ($30.8 billion), up 2.9% from the year-earlier level. The results were driven by strong oil and gas price realizations.

Production

China’s dominant producer of offshore crude oil and natural gas, CNOOC achieved net production of 342.4 million barrels of oil equivalent (MMBoe), up approximately 3.2% from the year-ago level. The positive performance was mainly attributable to contribution from the latest projects and new development wells. Overseas production and steady performances by the already operational oil and gas fields also added to the increase.

Price Realizations

The company’s average realized oil price increased 0.7% year over year to $110.48 per barrel. Realized gas price increased 12.0% to $5.77 per thousand cubic feet (Mcf) from the year-ago level of $5.15 per Mcf.

Expenses

China introduced a resource tax of 5% of sales on crude oil and natural gas products in Nov 2011.

The Chinese explorer’s all-in cost increased 16.8% year over year to $35.73 per barrel of oil due to the imposition of the resource tax as well as other factors.

Capital Expenditure

CNOOC full-year capital expenditure was $9.2 billion, representing an increase of 43.1% from the year ago.

During the year, CNOOC was busy drilling 19 successful appraisal wells offshore China and it made 21 new discoveries in total. Among these, Penglai 9-1, Dongfang13-2 and Qinhuangdao 29-2/29-2 East have the potential to be developed into large sized oil and gas fields.

In 2012, the company’s reserve replacement ratio was 188%.

Guidance

For 2013, CNOOC has proposed to invest around $12 billion to $14 billion in 2013 to attain an average annual output growth of 6% to 10% from 2011 to 2015. The company is completely positive to attain its 2011 to 2015 production CAGR target.

CNOOC’s estimated net production for 2013 is 338–348 million barrels of oil equivalent (Boe), which is almost flat with the 2012 production of 342.4 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.

Again, CNOOC completed the acquisition of Canadian energy producer Nexen Inc. for approximately $15.1 billion in cash, in Feb 2013. This would raise its proven reserves by 30%. The company also completed the purchase of a partial working interest in exploration areas 1, 2 and 3A in Uganda.

The company currently holds a Zacks Rank #3 (Hold). However, the Zacks Ranked #1 stocks of Stone Energy Corp. (SGY - Analyst Report), Helmerich & Payne, Inc. (HP - Analyst Report) and Range Resources Corporation (RRC - Analyst Report) are expected to outperform the market over the next few months.
 

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