QUOTE AND NEWS
DailyFinance  Apr 3  Comment 
MANILA, PHILIPPINES -- (Marketwired) -- 04/03/14 -- Researched by Industrial Info Resources (Sugar Land, Texas) -- CNOOC Dongfang Petrochemical Company, a wholly owned subsidiary of China National Offshore Oil Corporation (HK:00883) (CNOOC)...
Mondo Visione  Apr 2  Comment 
Hong Kong Futures Exchange Limited (HKFE), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), has announced that with effect from the commencement of trading on Friday, 4 April 2014, the minimum margins to be collected...
OilVoice  Apr 2  Comment 
Green Dragon Gas Ltd. AIM GDG one of the largest independent companies involved in the production and sale of CBM gas in China is pleased to announce that it has entered into a binding agreement
StreetInsider.com  Apr 1  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Management+Changes/CNOOC+Ltd.+%28CEO%29+Remains+Hold+at+Deutsche+Bank/9337397.html for the full story.
Benzinga  Mar 31  Comment 
Analysts at Credit Suisse downgraded BlackBerry (NASDAQ: BBRY) from “neutral” to “underperform.” The target price for BlackBerry has been lowered from $7 to $6. BlackBerry's shares closed at $8.41 on Friday. Analysts at UBS downgraded...
OilVoice  Mar 31  Comment 
Shares of China39s top offshore oil producer CNOOC Ltd fell on Monday after it posted an 11.4 percent slide in its 2013 net profit lagging analysts39 forecasts. CNOOC posted a net profit of
OilVoice  Mar 28  Comment 
CNOOC Limited NYSE CEO SEHK 00883 TSX CNU announced its annual results for the year ended December 31 2013. In 2013 the Company continued to increase its investment in exploration. Benefitti
Wall Street Journal  Mar 28  Comment 
Cnooc is planning a big rise in capital spending this year as it shifts its focus to deep-water projects, despite posting an 11% fall in 2013 net profit.
OilVoice  Mar 24  Comment 
CNOOC Limited NYSE CEO SEHK 00883 TSX CNU announced that the Company has recently made a midsized natural gas discovery Bozhong 221 in Bohai. Bozhong 221 structure is located in the south c




 

CNOOC Limited, the largest offshore drilling company in China[1], is majority-owned by China National Offshore Oil Corporation. The company is a member of the country's government-controlled oil oligopoly along with PetroChina (owned by China National Petroleum Corporation - CNPC) and Sinopec (officially, China Petroleum and Chemical Corporation). CNOOC receives, at no cost, a 51% stake in ANY offshore project in which a foreign oil company is involved - a big advantage over its competitors, who do not have this right.[2]This means that CNOOC can let foreigners shoulder the exploration costs and reap the production benefits. Since the record high's seen in the summer of 2008 oil prices since fell to $40 a barrel in the depths of the credit crisis before rebounding to their current levels in the $70-80 range.

CNOOC's future is intimately tied to China's future. Demand for oil in the emerging economy is colossal, at 9.0 million barrels per day, and the country produces less than half that.[3] Furthermore, the government is promoting a shift away from the dirty coal that powers most of their electrical generators to cleaner natural gas. In both cases, CNOOC stands to benefit: its parent's expansion of refining capacity means it has a larger market to expand production, while its investment in Liquefied Natural Gas infrastructure means it will not only be able to produce the stuff, but transport it around the country as well. The growth of the Chinese economy, however, is a double-edged sword. CNOOC sells its oil to its parent in Yuan, and oil is pegged to the dollar. The Yuan has appreciated against the dollar since the Chinese government let it float with a small range in 2005, since then the Chinese government has once again pegged the yuan to the dollar. This is a small price, however, given that the company has the favor of the Chinese government and the right to take shares in offshore Chinese projects started by Western oil companies. By 2015, CNOOC plans to reach cude oil refining capacity of 51.5 million tons a year, more than double its production level in 2009.

Company Overview

CNOOC is the publicly-traded subsidiary of China National Offshore Oil Corp, and is China's largest offshore independent oil & gas exploration company.[4]

Fiscal Year 2010 Summary In 2010, CNOOC net profit was RMB 54.4 billion or $8.4 billion USD, a 84% increase from the previous year. Additionally, net production was 328.8 million BOE, a 44.4% increase from the previous year, due to projects started in the year, outperforming producing fields, and contribution from the five acquisitions of the yeawr. The company's exploration program achieved twelve independent and one Production Sharing Contract (PSC) discovery. CNOOC realized an average oil price of $77.59/bbl, an increase of 28% from the previous year, and average oil price of $4.27/mcf, an increase of 6% from the previous year.[5]

Business Segments

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CNOOC Ltd. Revenue and Income Over Time (RMB Millions)[6][7]

Oil & Gas Sales (82.1% of 2010 Revenue)[8]

CNOOC is the China's largest offshore oil production company; in 2010 it had estimated net proved reserves of 2.99 billion BOE, of which 1.92 billion barrels were crude oil and condensate and 6,458.3 Bcf were natural gas. Net production averaged 721,534 BBls/d of crude oil, and 1,040 MMCf/d of natural gas, which together totaled 900,702 BOE per day.[9]

Marketing Revenues (17.9% of 2010 Revenue)[8]

CNOOC's marketing segment sells oil to the PRC (People's Republic of China) and international trading markets. The company's sales are coordinated with the other big Chinese producers, PetroChina and Sinopec, by the National Development and Reform Commission.

Trends and Forces

Rising Oil Prices Increase CNOOC's Margins

Oil cost less than $20 a barrel in 2000[10], and peaked on July 3, 2008, when crude oil futures reached a record high of $145.85.[11] Although oil prices took a dip in 2009 due to the global financial crisis, averaging $62 per barrel[12], prices have returned, averaging at $79 per barrel during first quarter of 2010.[13] Over the last decade, oil prices have fluctuated violently, but the overall trend has been up. As oil prices rise, independent oil & gas companies like CNOOC see their revenues and margins grow, as they can make more money while producing the same amount. The opposite was true in 2009--while production increased 5.7%, CNOOC achieved an average realized oil price of $60.61 per barrel, a 32.2% decrease from 2008, consequently resulting in a decrease in revenue of 16.5%.[14][15][7]

CNOOC is the Only Chinese Petroleum Exploration Company Allowed to Enter into Production Sharing Agreements with Western Oil Companies

CNOOC is the only Chinese oil companies allowed to enter offshore production sharing agreements with foreign oil companies - and foreign oil companies are only allowed to explore offshore China if they sign a production sharing agreement with CNOOC.[16] Furthermore, CNOOC enters these production sharing agreements at no cost and with a 51% interest - by Chinese law.[17] As Western oil companies expand across the globe to increase production and take advantage of soaring oil prices, they will want to develop the rich offshore Chinese oilfields - and CNOOC will be able to reap the benefits.

CNOOC's Business is Dependent on the Chinese Demand for Petroleum

In 2008, China produced 4 million barrels per day, half of the 8 million barrels per day demand[18]. China's government is loathe to become dependent on foreign oil, and has imposed high taxes on imported crude and refined products in order to stimulate the growth of its own oil companies (like CNOOC). As the Chinese economy grows, the country's demand will continue to out-pace its supply, and Chinese production companies like CNOOC will benefit. With the international economy lagging because of the global credit crunch and possibility of a recession in Western markets, however, it's possible that China's export-based manufacturing economy will slow, causing oil demand to fall and CNOOC's business to go with it.

CNOOC's Parent is Expanding its Downstream Production, Giving CNOOC's Production Room to Grow

CNOOC Ltd's parent company, CNOOC built its first petroleum refinery in Guangdong Province, with the capacity to produce 240,000 BPD, of which 52% is gasoline, 18% is diesel, and the remainder jet fuel.[19] In the past, CNOOC Ltd.sold its production to its parent, who would then sell it to other refiners. Now that it is involved in the refining process, the market for CNOOC's petroleum is expected to expand, allowing the company to increase production without worrying about creating an oversupply.

A Chinese Transition Away From Coal to Natural Gas Creates New Opportunities for CNOOC's Gas Business

Two-thirds of China's electricity generation comes from coal-fired power plants[20] - sources that generate tremendous amounts of greenhouse gases and particulate air pollution. To remedy some of these problems, China planned to increase natural gas usage from 3% to 5.3% by 2010[21] For the Beijing Olympics, the city used natural gas for industrial, heating, and cooking purposes, in order to replace the use of up to 6.1 million tonnes of coal.[22] As China's largest offshore producer[23], CNOOC is in a strong position to benefit from increased gas demand. Furthermore, the company is working on building on more Liquefied Natural Gas terminals[24] and 1600 km worth of coast-to-coast pipelines to help meet demand for gas throughout China.[25]

As part of tighter environmental controls that are leading an increase in natural gas usage, China has also decreed that a by-product of natural gas extraction, CO2, must be properly dealt with. To comply with these regulations CNOOC has entered into an agreement involving liquefied CO2 with Primeline Energy Holdings. After the CO2 is extracted from natural gas, it will be liquefied to create food grade liquid CO2 which will then be sold on local markets [26]. This agreement may allow CO2 to find another revenue stream in the face of stronger environmental controls.

The Appreciation of the Yuan Damages CNOOC's Profitability

Internationally, oil is traded in U.S. dollars, so CNOOC prices its petroleum in dollars. Its three largest customers, who make up 65% of the company's revenues, are Sinopec (47%), PetroChina (15%) and Panjin Northern Asphalt Company Limited (3%).[27] With the majority of the company's customers purchasing oil in Yuan, CNOOC loses money when the Chinese currency appreciates, as the dollar, and, thus, oil, becomes less valuable. From July 21, 2005, when China unpegged the Yuan and allowed it to float, to December 31, 2009, the currency appreciated about 21.2% against the U.S. dollar. Fortunately for the company, about 96% of its debt is held in U.S. dollars, so there is a negative feedback effect as appreciation makes the company's debt less valuable.[28]

As of mid February 2010 there has been speculation that the Chinese government is considering allowing the yuan to float within a narrow band again. This speculation comes amidst reports that the government is conducting stress-tests of labor intensive companies to determine what the effect of a stronger yuan would be. There has been intense international pressure on China to allow its currency to float once more as many foreign leader's claim that it is undervalued, however so far China has rebuffed those calls. [29]

Competition

As the largest offshore explorer in China, CNOOC faces little competition. PetroChina (owned by China National Petroleum Company) and Sinopec (officially, China Petroleum and Chemical Corporation) both drill and refine petroleum, and both are large enough to effectively compete, but both are controlled by the Chinese government. CNOOC doesn't compete with the oil majors because it has the right to take a majority share, without cost, in the projects of any Western oil company that wants to drill offshore China, so it actually benefits when foreign oil companies enter the country.

Comparison to Competitors - 2008
CONOCOPHILLIPS ROYAL DUTCH SHELL EXXONMOBIL CHEVRON BP LUKOIL(1) Eni S.p.A(1) Total S.A. CNOOC
Reserves
Oil and Gas Liquids
(Millions of barrels)
5,817[30][31] 3775[32] 7,576(2)[33] 7,350[34] 10,353[35] 15,715[36] 3,219[37] 5,695[38] 1,578[39]
Natural Gas
(Billions of cubic feet)
24,948[40] 40,895[41] 31,402(2)[33] 23,075[34] 45,208[35] 27,921[42] 18,090[37] 26,218[38] 5,623[39]
Production
Oil and Gas Liquids
(Thousand b/d)
1,108[43] 1,695[32] 2,405[44] 1,649[45] 2,401[46] 1,954[47] 1,020[37] 1,456[48] 422[39]
Natural Gas
(Million cf/d)
4,970[43] 8,595[41] 9,095[44] 5,125[45] 8,334[46] 1,586[49] 4,114[37] 4,837[48] 621[39]

(1) Latest data is for 2007 (2) Does not include reserves of equity affiliates




References

  1. China Daily: "CNOOC announces new oil, gas discovery in Bohai Bay"
  2. EIA: China: Oil
  3. China depending more on imported oil January 20, 2010
  4. China Daily: "CNOOC announces new oil, gas discovery in Bohai Bay"
  5. Results Announcement 2010 - Presentation
  6. CEO 2007 20-F, page 10
  7. 7.0 7.1
  8. 8.0 8.1 CNOOC 2010 Annual Report Pg. 57
  9. CNOOC 2010 Annual Report Pg. 1`
  10. zFacts: "Crude Oil Prices Drive up Cost of U.S. Addiction"
  11. VOA News: "Oil Prices Soar to Record High of Nearly $146 a Barrel"
  12. EIA: "Short-Term Energy Outlook"
  13. "EIA Petroleum Navigator"
  14. CEO 2009 20-F Item 4 Pg. 24
  15. CEO 2009 20-F Item 4 Pg. 35
  16. CEO 2003 20-F, SELECTED FINANCIAL DATA
  17. EIA: China: Oil
  18. EIA China Oil
  19. NewsGD: "CNOOC refinery to feed Guangdong market"
  20. BBC News: "China unveils climate change plan"
  21. Self Investors: "China Oil Perspective - CNOOC (CEO), PetroChina (PTR) & China Petroleum (SNP)"
  22. Beijing Official Website: "Energy Development and Energy Mix Readjustment "
  23. China Daily: "CNOOC announces new oil, gas discovery in Bohai Bay"
  24. CNOOC Gas: LNG Business
  25. CNOOC Gas: Natural Gas Transmission and Distribution Business
  26. Primeline and CNOOC Sign Agreement for the Sale of CO2
  27. CEO 2007 20-F, Page F-83
  28. CEO 2007 20-F, Page 20
  29. [1] Yuan Forwards Rise on Currency Stress-Test Report; Bonds Surge February 26, 2010
  30. COP 2008 10-K, Item 8,Page 149
  31. COP 2008 10-K, Item 8,Page 152
  32. 32.0 32.1 RDS’A 2008 20-F, Supplementary Information, Crude oil and natural gas liquids
  33. 33.0 33.1 XOM 2008 10-K, Item 1, Page6
  34. 34.0 34.1 CVX 10-K 2009, Item 1, Page 7
  35. 35.0 35.1 BP 2008 20-F, Item 1, Page 16
  36. Lukoil Investor Relations – Fact Book 2008, Page 11
  37. 37.0 37.1 37.2 37.3 ENI S.p.A. – Fact Book 2007, Page 11
  38. 38.0 38.1 TOT 2008 20-F, Item 4, Page 10
  39. 39.0 39.1 39.2 39.3 http://www.sec.gov/Archives/edgar/data/1095595/000095010309001057/dp13197_20f.htm CEO 2007 20-F]
  40. COP 2008 10-K, Item 8, Page 151
  41. 41.0 41.1 RDS’A 2008 20-F, Supplementary Information, Natural gas
  42. Lukoil Investor Relations – Fact Book 2008, Page 12
  43. 43.0 43.1 COP 2008 10-K, Item 6, Page 42
  44. 44.0 44.1 XOM, 2008 10-K, Item 6, Page 36
  45. 45.0 45.1 CVX 2008 10-K, Item 1, Page 5
  46. 46.0 46.1 BP 2008 20-F, Item 1, Page 14
  47. Lukoil Investor Relations – Fact Book 2008, Page 13
  48. 48.0 48.1 TOT 2008 20-F, Item 4, Page 12
  49. Lukoil Investor Relations – Fact Book 2008, Page 14
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