永利澳门网址官网登录 财经 CNOOC 2018Strategy Preview:Returning to growth 永利澳门网址官网登录:mode;reiterating Buy on CNOOC and COSL

CNOOC 2018Strategy Preview:Returning to growth 永利澳门网址官网登录:mode;reiterating Buy on CNOOC and COSL

With oil closing in at USD70/bbl, CNOOC’s management was much more
upbeatin its strategy guidance for 2018 than it was for 2017. The
company’s focus hasshifted back to growth and it has revised up its
volume guidance for 2018/2019.

In what remains a consistent story, GeoPark continued to show
productionmomentum and credit metric improvements; guiding for
self-funded growth.

    Following a 3% beat vs. its FY17 volume target (469mmBOE vs. target
of450-460mmBOE), FY18 and FY19 production targets were raised by 3.3%
and4.3%, to 470-480mmBOE and ~485mmBOE, respectively. The revised
targets arein line with DB’s more bullish view on the company. CNOOC was
also confidentof achieving RRR > 100% in 2018 with reserve life
likely rebounding to c.10.5years in 2017 (8.1 years in 2016) and 11.2
years in 2018 on new projects that willbe booked such as Liza phase 1 in
2017 and other new projects such as Librain 2018. We note that CNOOC has
used a very conservative oil price of USD53/bbl Brent in setting its
volume and capex guidance for 2018, setting itself up formore upside
surprises.

    Financial results came in slightly above Bloomberg consensus
(reportedadjusted EBITDA was ~3% better than consensus) and our forecast
(adjustedEBITDA was 4% above our estimate). More importantly, in our
view, thecompany continued its consistent deleveraging trajectory, which
we expectgoing forward (as long as Brent prices remain at USD50/bbl or
above); LTM netleverage declined to 2x from 2.2x in 2Q17 and 3.6x in

    CNOOC’s FY17 capital spent (RMB50bn) came in below the low-end of
the budgetrange of RMB60-70bn provided at the 2017 strategy day.
However, CNOOC plansto spend RMB70-80bn in FY18E, 40%-60% higher than
FY17, primarily due to 1) alow-base effect, 2) delays in the development
of the Uganda and Angola projectsprompting deferral of capex to the 2018
budget, and 3) a focus on developingnew projects (65% capex in
development) to underpin longer-term productiongrowth. Similar to last
year, half of its capex will be spent on overseas projects,with CNOOC
now amassing an impressive portfolio of assets surrounding theAtlantic
Ocean in Canada, the Gulf of Mexico, Guyana, Brazil, the North Sea
andNigeria. In the near term, 64% of CNOOC’s production will still come
from China,but we see that shifting more towards overseas in the medium
to long term.

  1. Colombianproduction should remain the main growth driver for the
    company, and newself-funded guidance is achievable, in our view.

    Management didn’t provide guidance on costs but they were confident
theycould achieve growth while keeping costs in check. In general, we
see slight costinflation in 2H17 arising from higher oil price-related
resources taxes and RMBappreciation, but overall costs should be kept in
check at c.USD35/bbl in 2H17and 2018. We believe higher reserve life
should keep DD&A costs flat to down in2018, which would help to offset
some of the other cost increases in 2018 due tothe higher oil price. For
example, CNOOC will lock in most of the drilling contractswith COSL
before CNY in order to ensure lower day rates for the full year.

    Steady production growth continues and year-end target has been
reached.

    Operationally, the company’s 3Q17 production of 28.3k boed was
in-line withour forecast representing 28% yoy growth, and the company is
currentlyexceeding its year-end production exit target of 30k boed.
Colombianproduction, which comprises 79% of total production (97% of the
group’sliquids production), grew an impressive 7% sequentially (43% yoy)
as thecompany has successfully exploited its sweet spot in the Llanos 34
Block(which may represent the biggest crude oil find in Colombia in
nearly twodecades). To spur further growth, the company has reported a
successfuldrilling campaign in Llanos 34, and acquired new acreage
adjacent to Llanos34 and was awarded a new onshore block in Brazil
(Potiguar Basin).

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