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CNOOC Signs PSC with Smart Oil

Zacks Equity Research

Chinese offshore giant – CNOOC Ltd. (CEO) penned a production sharing contract (:PSC) with Smart Oil Investment Ltd. for Block 05/31 in Bohai, China. Block 05/31 is located at the intersection of Qikou Sag and Nanpu Sag in the West of Bohai. The block covers a total area of 270 square kilometers with water depth ranging from 5 to 15 meters.

Through the contract, CNOOC has prudently passed on the cost and responsibility to conduct 3D seismic data surveys and drill exploration wells in the block to Smart Oil. However, CNOOC has retained the right to participate in up to 51% of working interest in any subsequent 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 transactions 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.

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).

In recent times, the Chinese offshore giant has successfully countered 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.

CNOOC carries a Zacks Rank #2 (Buy). However, there are other Zacks Ranked #1 (Strong Buy) stocks – Susser Petroleum Partners LP (SUSP), SM Energy Company (SM) and China Petroleum & Chemical Corp. (SNP) – that are expected to perform more impressively over the short term.

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