Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

CNOOC posted a decent set of interim results with more significant cost cuts than we had originally assumed, leading to an increase in our fair value estimate. Although we still think the company will record a net loss of HKD 5.4 billion in 2016, this is mainly due to an impairment provision of HKD 10.4 billion for the group’s Canadian assets. We now expect a full-year DPS of HKD 0.22, given that the company would be profitable if not for the impairment charge, which is a noncash item.We have also raised our crude oil price forecasts for 2016-18 to reflect the rise in near-term price expectations on faster and deeper cuts in North American production. We expect Brent crude to average USD 45, USD 51, and USD 68 per barrel in 2016, 2017, and 2018, respectively. However, our midcycle Brent oil price forecast remains at USD 60 per barrel, as cost compression is likely to lead to a resumption of supply and cap higher prices. CNOOC’s share price has outperformed on stronger oil prices, and we think it remains fairly valued. With no change to our midcycle Brent crude oil price forecast of USD 60 per barrel, we retain our no-moat rating on CNOOC, but we note that its reduced costs have improved its medium-term competitiveness.Analysts: Lorraine Tan, CFA &amp; Stephen Simko, CFA

CNOOC posted a decent set of interim results with more significant cost cuts than we had originally assumed, leading to an increase in our fair value estimate. Although we still think the company will record a net loss of HKD 5.4 billion in 2016, this is mainly due to an impairment provision of HKD 10.4 billion for the group’s Canadian assets. We now expect a full-year DPS of HKD 0.22, given that the company would be profitable if not for the impairment charge, which is a noncash item.We have also raised our crude oil price forecasts for 2016-18 to reflect the rise in near-term price expectations on faster and deeper cuts in North American production. We expect Brent crude to average USD 45, USD 51, and USD 68 per barrel in 2016, 2017, and 2018, respectively. However, our midcycle Brent oil price forecast remains at USD 60 per barrel, as cost compression is likely to lead to a resumption of supply and cap higher prices. CNOOC’s share price has outperformed on stronger oil prices, and we think it remains fairly valued. With no change to our midcycle Brent crude oil price forecast of USD 60 per barrel, we retain our no-moat rating on CNOOC, but we note that its reduced costs have improved its medium-term competitiveness.Analysts: Lorraine Tan, CFA &amp; Stephen Simko, CFA

CNOOC Ltd

CNOOC Cost Cuts Impress