CNOOC Earnings: Stringent Cost Control and Rising Output Drive Strong Results; Attractive Dividend

CNOOC's first-half 2024 net profit of CNY 79.7 billion, up 25% year on year, exceeded our expectation, but we see weaker second-half earnings due to sequentially lower oil prices. After updating our latest energy price and foreign exchange assumptions, we raise our fair value estimate to HKD 22.50 per H-share (CNY 20.70 per A-share) from HKD 19.70 (CNY 18.10). While we cut 2024-25 earnings forecasts by 4%-6% to account for lower oil prices, our midcycle net profit is increased by 18% because of lower cost assumptions. CNOOC’s all-in cost was down 1.5% year on year to USD 27.75 per barrel on the back of lower operating expenses, underlying its upstream cost leadership among peers, PetroChina and Sinopec. We think CNOOC’s H-shares are fairly valued, but its attractive 2024 dividend yield of more than 6% and ongoing share buybacks should provide support to share price.