CNOOC: 2022 update

Negative effect from US sanctions on CNOOC dissipating, crude oil prices at record levels while valuation multiples are half the global peer group's. Estimated reading time: 13 minutes.

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Summary

• When I wrote my first report on CNOOC in October 2020, I noted that it had a unique position in offshore Chinese oil & gas exploration. I also said that it had successfully grown reserves and production while paying out regular dividends.

• The supply & demand for oil has since tightened, with global inventories close to record lows. While China’s zero-COVID policy is hitting the demand for crude oil, Western sanctions on Russia are counteracting that negative effect on the oil price by keeping supply from the global market. Brent crude oil prices for 2025 delivery rose from about US$50/bbl when I wrote the report in October 2020 to US$77/bbl today.

• CNOOC conducted an A-share IPO on 11 April 2022. The price of the A-share shot up after listing, causing the A-share to trade at a +63% premium to the H-share today. But such a premium is not unheard of among dual-listed Chinese shares.

• On 2023e consensus earnings, CNOOC’s H-share now trades at 2.1x EBITDA, 4.1x P/E, 2.6x P/CF and a 10.1% dividend yield. Those numbers are roughly half of the global peer group’s and below CNOOC’s historical median levels.

Note that American investors (including funds that serve American investors) are unable to purchase shares in CNOOC as those investors are subject to US sanctions on Communist Chinese Military Companies (CCMCs).

Introduction to CNOOC

I first wrote about the Chinese oil & gas exploration and production company CNOOC in October 2020. The entire presentation is available here.

The story back then was the following: