CNOOC
- Sector: Energy
- Sub Sector: Oil and Gas
- Country: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 20 Sep 2022- We expect CNOOC’s credit profile to remain strong in 2H22 thanks to elevated oil and gas prices, strong cost control and rising production volume.
- We believe CNOOC is well positioned in terms of cost management, and we expect the company to continue to post strong operating profits in 2H22 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.
- The O&G industry recovery is credit positive to CNOOC but there are rising geopolitical risk and the spillover risk of Russian sanctions, though still manageable as of now.
Business Description
AS OF 20 Sep 2022- CNOOC is an upstream oil and gas (O&G) company, and is one of the three Chinese major 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 30 June 2022, 71% of CNOOC's revenue is derived from customers in China. Globally, CNOOC has exposure to Canada, the United States of America, the United Kingdom, Nigeria, Argentina, Indonesia, Uganda, Iraq, Brazil, Guyana, Russia and Australia. In terms of foreign exchange risk, CNOOC is primarily exposed to $ and RMB.
- CNOOC produced 304.8 mmboe of O&G output in 1H22. As of FY21, the company had a net proved reserves of about 5.73 bn BOE, of which, around 48.2% of its net proved reserves are currently undeveloped.
Risk & Catalysts
AS OF 20 Sep 2022- Vulnerability and exposure to global/domestic oil benchmarks, 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 increase capex spending on acquisitions/JVs, exploration and development once it depletes 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 28 Feb 2023| RMB bn | LTM 2Q22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| Debt to Book Cap | 19.1% | 21.9% | 24.9% | 26.1% | 25.3% |
| Net Debt/Capitalization | (4.6%) | 9.0% | 13.5% | 17.8% | 23.2% |
| Debt to Equity | 23.7% | 28.1% | 33.1% | 35.4% | 33.9% |
| Total Debt/Total Assets | 14.1% | 17.2% | 19.9% | 20.9% | 20.8% |
| Total Debt/EBITDA | 0.6x | 0.8x | 1.5x | 1.1x | 1.1x |
| Net Debt/EBITDA | -0.1x | 0.3x | 0.8x | 0.7x | 1.0x |
| EBITDA/Gross Interest | 49.5x | 31.1x | 15.9x | 24.3x | 23.8x |
| EBITDA Margin | 64.4% | 66.7% | 61.8% | 63.7% | 56.8% |
CreditSights View
AS OF 20 Sep 2022We affirm our Market perform recommendation on CNOOC. Over the next 6 to 12 months, we do not expect CNOOC’s $ bonds to lag the ICE BAML Asia $ IG Corporate Index (ADIG) as oil and gas prices remain elevated and investors stay defensive. CNOOC’s $ bonds on average widened 6 bp YTD compared to the 39 bp widening of ADIG; and its short-end and long-end bonds also outperformed Sinopec and CNPC on year-to-date (YTD) basis. Despite the outperformance YTD, CNOOC’s $ bonds on average are still cheaper than Sinopec and CNPC as it remains on the US sanction lists. We like the belly part of the CNOOC $ bond curve (i.e., CNOOC 2028, 2029 and 2033), which on average provides 36 bp and 47 bp yield pickup versus CNPC and Sinopec.
Recommendation Reviewed: October 28, 2022
Recommendation Changed: May 03, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
