Cnooc Gains Most in Almost 6 Years After Profit Beats Consensus

  • Shares surge 14 percent for biggest gain since Oct. 2008
  • Stock rated `outperform' at Macquarie Capital Securities

Cnooc Ltd., China’s biggest offshore oil and gas explorer, rebounded in Hong Kong trading after its first-half profit beat consensus even as the collapse of crude price dragged earnings down 56 percent from a year ago.

Cnooc shares jumped 14 percent to HK$9.22 in Hong Kong, the biggest gain since October 2008. The benchmark Hang Seng Index gained 3.6 percent, while Brent crude rose 3.8 percent.

Net income dropped to 14.73 billion yuan ($2.3 billion) from 33.59 billion yuan a year earlier, the Beijing-based explorer said in a statement Wednesday. That beat the 13.9 billion yuan average of three analyst estimates compiled by Bloomberg.

“Cnooc is the most geared of the three China oil companies to any pick-up in oil prices, has a comfortable balance sheet and is traded at a very appealing price level,” James Hubbard, a Hong Kong-based analyst at Macquarie Capital Securities Ltd. said Thursday in an e-mailed research note. Hubbard rated the stock as ”outperform” with a 12-month price target of HK$15.

Cnooc cut capital expenditures by 31 percent in the first half of the year as oil explorers from Australia to Texas reduced staff and slashed expenses amid the worst market collapse since the financial crisis of 2008. The strategy paid off last year for the Chinese company, when it reported a surprise 6.6 percent increase in profit. The company has no plans to lay off employees, Chairman Yang Hua told reporters yesterday.

The spending cut was “in line with guidance, reflecting increased capital discipline in a challenging commodity price environment,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

Net production in the period rose 14 percent to 240 million barrels of oil equivalent. Cnooc, which depends heavily on oil exploration and production for revenue, is most exposed to the price plunge among China’s oil majors and must rely on cost cuts and capital spending curbs to boost profit, Laban Yu, a Hong Kong-based analyst at Jefferies Group LLC, said in a research note e-mailed Thursday.

Increasing Output

Cnooc reiterated its plans to increase production by as much as 15 percent this year to as high as 495 million barrels of oil equivalent, while cutting capital expenditure by as much as 35 percent to 70 billion yuan. Five of its seven new upstream projects have begun operations and its made six new discoveries, the company said Wednesday. Oil and gas sales fell to 77 billion yuan in the first six months from 117 billion yuan a year ago.

“The development of the company in the future will be driven by both production and economic efficiency instead of only by production volume,” Yang said in the statement. “Looking forward to the second half of the year and beyond, the company expects the severe operating environment to continue.”

Production in Canada, where the company’s Nexen subsidiary operates, fell 15 percent to 10.5 million barrels of oil equivalent. Cnooc bought the unit in 2012, when Brent averaged more than $110 a barrel.

Oil twice entered a bear market since mid-2014 as a flood of output from North American shale regions, the Persian Gulf and deepwater fields outpaced consumption. Producers from the Organization of Petroleum Exporting countries have committed to maintaining output to keep market share, while growing energy self-sufficiency in the U.S. has made more crude available globally.

More than half a trillion dollars of value has been wiped from the five biggest international oil companies -- Exxon, Shell, Chevron, Total and BP -- since mid-June last year. The industry is the worst performer in the MSCI World Index this year.

Brent crude has averaged about $59 a barrel in the first half of the year, down 45 percent from the same period in 2014. The benchmark for half of the world’s oil this month slipped below $45 a barrel for the first time since 2009. The Bloomberg Asia Pacific Oil and Gas Index has fallen about 23 percent this year.

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