CNOOC: Strategy Preview Implies Robust Growth Ahead

We maintain our fair value estimates for CNOOC at HKD 18.00 per H-share (CNY 16.60 per A-share). Despite the recent share price run-up, we think CNOOC and its peers are undervalued. The possibility of the Chinese government introducing what appear to be capital allocation goals, which include dividend payouts and share buybacks, in the performance appraisal of executives at listed state-owned enterprises should also provide share price support to the Big Three Chinese oil and gas players, in our view. With uncertainty in near-term oil prices, we still prefer CNOOC over PetroChina and Sinopec given its cost efficiency—we expect average all-in cost at around USD 30 per barrel in our explicit five-year forecast periods—and oil and gas output growth. We believe CNOOC’s 2024 strategy preview, which guided for robust output targets for 2024-26, implies that energy security remains a key concern for China and the government will continue to focus on production growth in the sector.