On Aug 21, 2013, we downgraded our recommendation on
) to Neutral from Outperform, based on the company's lukewarm
first half 2013 performance. This Chinese offshore pure play oil
and gas exploration and production (E&P) company currently
carries a Zacks Rank #2 (Buy).
Why the Downgrade?
Headquartered in Hong Kong, CNOOC is one of the three oil
companies in China and ranks among the leading independent oil
and gas E&P companies of the world. The company is a dominant
producer of offshore crude oil and natural gas and engages in the
exploration, development, production as well as sale of crude
oil, natural gas and other petroleum products.
CNOOC also has a strong growth profile, exclusivity in the
offshore China region and attractive liquefied natural gas
investments. Also, we are encouraged by the company's focus on
revenue growth through asset acquisitions.
CNOOC's average realized oil price decreased 10.9% year over year
to $104.20 per barrel in the first half of 2013. Realized gas
price also decreased 3.7% to $5.68 per thousand cubic feet (Mcf)
from the year-ago level.
The Chinese offshore giant was able to counter the volatile oil
price environment on the strength of its higher production. While
we continue to be positive on the long-term growth options for
CNOOC, the loss of price realization momentum and absence of
catalysts make us apprehensive in the near term. As is the case
with other exploration and production companies, results for
CNOOC are directly exposed to oil and gas prices, which are
inherently volatile and subject to complex market forces.
Realized prices could fall further going forward, thereby
affecting the company's revenues, earnings and cash flow.
Other Stocks to Consider
There are other stocks in the sector that appear more rewarding
in the near term. Among these
Carrizo Oil & Gas Inc.
Abraxas Petroleum Corp.
Oiltanking Partners, L.P.
) are expected to perform impressively over the next few months
and carry a Zacks Rank #1 (Strong Buy).
ABRAXAS PETE/NV (AXAS): Free Stock Analysis
CNOOC LTD ADR (CEO): Free Stock Analysis
CARRIZO OIL&GAS (CRZO): Free Stock Analysis
OILTANKING PTNR (OILT): Free Stock Analysis
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