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CNOOC to Share Production with Eni Unit in South China Sea

Zacks Equity Research

CNOOC Ltd. (CEO) has entered into a production sharing agreement with Eni SpA’s (E) subsidiary Eni China B.V., for Block 50/34 in the South China Sea. The block is located in the Qiongdongnan Basin, offshore Hainan Island, with a total area of 2,000 square kilometers.

Per the agreement, Eni China will conduct 3D seismic survey and drill an exploration well in Block 50/34 during the six and half years exploration period. This unit of the Italian major will bear all the expenditures during this period. CNOOC Ltd. will have a 51% working interest in any commercial discovery in the block.

We remain optimistic on CNOOC as its performance reflects its premium assets portfolio, excellent execution strategy, unique position as a pure oil play and potential transaction in the merger and acquisition space.

CNOOC is one of the three leading oil companies in China and among the largest independent oil and gas exploration and production companies of the world. It is China’s 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.

The company’s growth will be augmented by significant capital injection for upstream activities in the next five years. Management at CNOOC foresees a sustained 6–10% compound annual production growth rate over the next five years backed by various organic and inorganic initiatives.

CNOOC Ltd. is the only company permitted to conduct exploration and production activities with international oil and gas companies off the shores of China. The Chinese government owns a 64.41% stake in the company by virtue of its ownership of CNOOC (China National Offshore Oil Corporation).

CNOOC carries a Zacks Rank #3 (Hold). However, there are other Zacks Ranked #1 (Strong Buy) stocks such as Boardwalk Pipeline Partners, LP (BWP) and WPX Energy, Inc. (WPX) which are expected to perform impressively over the short term.

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