CNOOC Offloads Indonesian Stake


Chinese oil giant CNOOC Limited (NYSE:CEO - News) announced the sale of its 36.7205% working interest in Offshore Northwest Java Production Sharing Contract (ONWJ PSC) in Indonesia to EMP International (:BVI) Limited, an affiliate of PT Energi Mega Persada.

CNOOC’s subsidiary – CNOOC Southeast Asia Limited – will receive a consideration of $212 million from the divesture.

PT Pertamina Hulu Energi – a unit of state-owned oil and gas firm PT Pertamina owns the operating rights of ONWJ PSC. As of 2010, the company had net proved reserves of 22.26 million barrels of oil equivalent (NYSE:BOE - News) in ONWJ PSC. The block generated 62,000 BOE daily in the first nine months of 2011.

The ONWJ oil and gas block is located in the Java Sea near Cirebon and Indonesia's Pertamina controls a 53.2% interest. Other minority stake holders include Risco Energy Pte Ltd and Talisman Energy (NYSE:TLM - News).

This disposition underlines CNOOC’s strategy of shedding low profit driven assets and acquiring high-return properties. Recently, CNOOC acquired Canadian oil sands operator OPTI Canada Inc for a total consideration of $2.1 billion and took over 33.3% undivided interest in Chesapeake Energy Corporation's (NYSE:CHK - News) Niobrara project in the Eagle Ford Shale play.

CNOOC is the largest producer of offshore crude oil and natural gas in China. It is a dominant producer of offshore crude oil and natural gas and engages in exploration, development, production, and sale of crude oil, natural gas, and other petroleum products.

We remain positive on CNOOC’s performance over the coming quarters, reflecting its premium assets portfolio, excellent execution strategy, unique position as a pure oil player and potential transactions in the merger and acquisition space.

However, CNOOC remains exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flow.

Hence, we foresee limited upside potential for the stock and maintain our Neutral recommendation.  CNOOC holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months.

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