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Fundamental View
AS OF 18 Apr 2023We expect CNOOC’s revenue growth to decelerate in FY23 as crude and natural gas prices have started to ease in 4Q22. That said, we expect CNOOC to maintain its cost leadership and a stable EBITDA margin.
We believe CNOOC is well positioned in terms of cost management, and we expect the company to continue to post strong operating profits in FY23 against the still elevated oil and gas prices.
We expect CNOOC to continue to benefit from the implied government support due the company’s critical role in China’s offshore upstream value chain and safeguarding China’s energy security.
Business Description
AS OF 18 Apr 2023- CNOOC is an upstream oil and gas (O&G) company, and is one of the three Chinese national oil companies (NOCs). Globally, it is also among one of the largest exploration and production (E&P) firms in terms of assets/reserves and production. CNOOC engages in E&P independently or through production sharing contacts (PSCs) with foreign/domestic partners. CNOOC is also the largest liquefied natural gas (LNG) importer in China, where it accounted for ~44% of total domestic imports.
- As of 31 December 2022, 69% of CNOOC's revenue is derived from customers in China. Globally, CNOOC has exposure toIraq, Russia, Canada, the United States of America, the United Kingdom, Nigeria, Uganda, Argentina, Brazil, Guyana and Australia. On foreign exchange risk, CNOOC is primarily exposed to the $ and RMB currencies.
- CNOOC produced 623.9 mmboe of O&G output in FY22. The company had a net proved reserves of about 6.24 bn BOE, of which, around 49.9% of its net proved reserves are currently undeveloped.
Risk & Catalysts
AS OF 18 Apr 2023Vulnerability and exposure to global/domestic oil benchmark, which may fluctuate in response to changes in supply and demand, market uncertainty and other exogenous factors beyond the company’s control.
CNOOC’s business is capital intensive as it has to regularly incur capex spending on acquisitions/JVs, exploration and production, and oilfield development to maintain its proved O&G reserve in offshore China.
Policy risk from strict regulations over O&G prices, E&P licensing, and import/export quotas. CNOOC is also exposed to geopolitical risk and it is included in the US DoD military and US Entity blacklists. The spillover risk of Russian sanctions and potential US secondary sanctions could affect its business operations.
CNOOC’s high reliance on crude oil sales may result in elevated energy transition risk and conflict with ESG mandates for its carbon-intensive nature.
Key Metrics
AS OF 21 Apr 2023| RMB bn | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Debt to Book Cap | 25.3% | 26.1% | 24.9% | 21.9% | 18.3% |
| Net Debt/Capitalization | 23.2% | 17.8% | 13.5% | 9.0% | 1.8% |
| Debt to Equity | 33.9% | 35.4% | 33.1% | 28.1% | 22.5% |
| Total Debt/Total Assets | 20.8% | 20.9% | 19.9% | 17.2% | 14.5% |
| Total Debt/EBITDA | 1.1x | 1.1x | 1.5x | 0.8x | 0.5x |
| Net Debt/EBITDA | 1.0x | 0.7x | 0.8x | 0.3x | 0.0x |
| EBITDA/Gross Interest | 23.8x | 24.3x | 15.9x | 31.1x | 51.1x |
| EBITDA Margin | 56.8% | 63.7% | 61.8% | 66.7% | 61.9% |
CreditSights View
AS OF 18 Apr 2023We affirm our Market perform recommendation on CNOOC (A1/A+/A+; Market perform) with a preference for the short-end (<5Y to maturity). Similar to other NOC (Chinese national oil) credits such as Sinopec (A1/A+/A+; Market perform) and CNPC (A1/A+/NR; Market perform), we think that CNOOC $ bonds are not cheap after tightening by an average of 34 bp since the COVID reopening triggered a China credit rally in mid-November. We continue to prefer short-end (<5Y to maturity) CNOOC $ bonds given its relatively flat spread/yield curve. CNOOC's belly (5-10Y maturity) is on average 44 bp wider than the short-end, a smaller yield pick-up compared to China A-rated peers (58 bp) and Asia A-rated peers (48 bp).
Recommendation Reviewed: April 18, 2023
Recommendation Changed: May 03, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
