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CNOOC:Quality oil at a discount

来源:麦格理证券 2016-07-26 00:00:00
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Attractions—defensive oil gearing, attractive yield, cheap

At Macquarie we think spot oil prices need to structurally rise by 60% to US$75per barrel long term, and CNOOC is the easiest way to express our bullish oilprice view in Asia. See companion Global sector note ‘Defensive oil optionality’.

Defensive Cash Flow. CNOOC’s cash flow per barrel is the highest globally–debt adjusted cash flow (DACF) of US$35 per barrel oil equivalent (boe)versus global average of US$24/boe–due to an ‘oily’ production mix andbelow average lifting costs. On our estimates, CNOOC can cover consensusforecast capex and dividends via internal cash flow at a mere US$40/bbl.

Dividend Upside. We set our dividend forecast such that CNOOC’s 2016-18egearing (ND/E) does not rise above the current low 14%. This approachleaves us with a dividend per share estimate that is 35% above consensus for2016-18E, and an attractive 5% dividend yield outlook.

Highly Attractive Valuation. Despite top-quartile return and cash flow metrics,CNOOC trades at a 33% discount to EM peers. Our base case HK$13.50valuation–@ US$74/bbl long-term Brent–is based on a target EV-EBITDA of5.0x 2017e and backed up by residual income valuation work.

The Pushback—low reserve life, falling returns, poor M&A

It’s going to run out of oil in 8 years Not really... CNOOC has a top-quartileten-year average organic replacement ratio of 115%, and it has consistentlyexpanded its proven reserve base over the past decade.

It’s an offshore producer so expect sub-par returns Underpinned by strongper barrel profitability, CNOOC’s cash return on capital employed (CROCE)was the highest globally over the past decade. Our forecast average 13%CROCE for CNOOC in 2016-18e, while below its historical average, is stillnear the top of the global pack.

In search of growth with a poor M&A track record CNOOC continues tostruggle with Nexen integration. That said, the portrayal of CNOOC as a highcost acquirer is incorrect—we calculate an average acquisition cost ofUS$3.60/boe of 2P reserves versus a global median of US$11.30 since 2000.

Bull-Bear outcomes directly linked to view on oil

CNOOC’s valuation is of course highly geared to the oil price outlook. AtUS$30/bbl the CNOOC investment case simply doesn’t work, while at US$90/bblour HK$20.90 bull valuation implies a doubling from current levels.





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