We maintained our recommendation on
) at Neutral on Nov 12, 2013. The company's performance, which
reflects its premium assets portfolio as well as excellent
execution strategy, positions it as a pure oil player with
potential transactions in the merger and acquisition space.
However, any delay in the commissioning of its projects is likely
to pull down earnings and increase costs. CEO carries a Zacks
Rank #3 (Hold).
CNOOC's growth will be augmented by significant capital injection
for upstream activities in the next five years. The company
believes that it will be able to maintain a 6-10% compound annual
production growth rate over the same time frame backed by various
organic and inorganic measures and intends to invest $12 billion
to $14 billion in 2013 to achieve its target growth rate.
Contribution from the latest projects and new development wells
also supported the increase. Moreover, revenues from the Iraqi
Missan service contract will be a major growth driver this year.
CNOOC has made significant progress in its scheduled project
agenda. During the third quarter, CNOOC made 5 discoveries and
successfully completed the appraisal of 15 wells. Of these, Luda
5-2 North is a mid-sized new discovery and Kenli 9-5/9-6 proved
to be a mid-sized oil and gas structure. These bear evidence to
CNOOC's constant efforts to upgrade its portfolio and enhance
In Feb 2013, CNOOC completed the acquisition of Canadian energy
producer Nexen Inc. for approximately $15.1 billion in cash. The
deal enhanced CNOOC's proven reserves by 30% and helped it to
vastly expand its holdings in Canada. Moreover, the purchase of
Nexen made CNOOC the operator of the largest oil field in the
U.K. and the biggest contributor to Forties Blend crude −
Buzzard. The CNOOC bid marks the biggest Chinese takeover attempt
However, the company's prospects are closely linked to the
successful completion of its growth projects, which in turn,
might be affected by operational hindrances, cost inflation and
overruns as well as delays in completion.
Other Stocks to Consider
While we prefer to remain on the sidelines for CEO, Zacks Ranked
#1 (Strong Buy) stocks -
SM Energy Company
Western Gas Partners LP
Abraxas Petroleum Corp.
) - could be good buying options for the short term.
ABRAXAS PETE/NV (AXAS): Free Stock Analysis
CNOOC LTD ADR (CEO): Free Stock Analysis
SM ENERGY CO (SM): Free Stock Analysis Report
WESTERN GAS PTR (WES): Free Stock Analysis
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