CNOOC:$48EBITDA per boe,+50%EPS in 1H

EBITDA leverage. Following the $18/b Y/Y change in Brent, we estimateCNOOC’s EBITDA per boe to increase by $13to $48/boe in 1H18. The impactof the special oil gain levy – kicks-in above $65/bbl – is a mere 20c/boe in1H18, on our estimates. Higher non-cash accretion expenses (volatile) maydampen our forecast EBITDA improvement, but won’t derail the strongunderlying cashflow growth.

Guyana upside optionality. Hess and Exxon recently revised up therecoverable resource estimate at the Stabroek block by 25% to 4.0billion boe,and noted that estimates have increased 4x since 2016. First production of120kb/d (gross) is expected in 2020, with scope for 750kb/d from five FPSOsby 2025. We carry CNOOC’s 25% interest at US$2.3bn or HK$0.4/sh basedon 1.5bn boe 2P (gross) and $6.3EV/2P, and note upside risk.

While CNOOC has ample capacity to positively surprise on dividends, wemodel only a stable absolute payout and caution on the company’s historicpreference to allocate excess cashflow towards domestic financial products.

We like CNOOC, but the stock falls behind Sinopec and PetroChina in ourpecking order due to Macquarie’s tepid oil price assumption. For perspectiveour 2P NAV10for CNOOC at $60/b LT is HK$10.9and at $80/b is HK$16.0.