CNOOC Earnings: Robust Results Aided by Excellent Cost Control

CNOOC’s 00883 first-quarter 2023 net profit was above our expectation, down only 6% year on year to CNY 32.1 billion, despite weaker oil prices. We keep our fair value estimate at HKD 17.50 per H-share (CNY 15.30 per A-share) after incorporating our latest energy price and foreign exchange assumptions. CNOOC remains our top pick in the sector, and we believe the H-shares are undervalued, given its cost efficiency and oil and gas output growth. We think the company is on track to achieve its output target of 2 million barrels of oil equivalent per day by 2025, supported by new projects coming on stream and new discoveries in China and overseas.

CNOOC’s excellent cost control remains the key highlight, with first-quarter all-in cost falling 8% year on year to USD 28.22 per boe. While management guided that the cost could normalize in following quarters, we forecast CNOOC to keep its average all-in cost at around USD 30.00 in our explicit five-year forecast period given the firm’s reputable track record. First-quarter operating cash flow rose 32% year on year to CNY 52.0 billion, and we think the robust cash flow should continue to support CNOOC’s capital expenditure, in addition to maintaining a high payout ratio to reward shareholders.

CNOOC’s first-quarter net oil and gas production was 163.9 million boe, up 9% year on year. The firm’s realized oil and gas prices were USD 74.17 (down 24% year on year) per barrel and USD 8.33 (flat year on year) per thousand cubic feet, respectively. Meanwhile, capital expenditure increased by 46% year on year to CNY 24.7 billion, tracking the firm’s full-year budget of between CNY 100 billion and CNY 110 billion.

Management also shared several updates on the firm’s green development, including the installation of Haiyou Guanlan, China’s first deep-sea floating wind power platform, the Enping 15-1 offshore carbon capture and storage demonstration project, as well as the usage of green electricity in offshore oil and gas fields.