We recommend current purchase of CNOOC Limited (CEO) stock for its growing oil and gas production, that we believe will be increasingly valuable to its home country, China. Our quantitative justification is the unlevered appreciation potential of 24% to a McDep Ratio of 1.0 and levered appreciation potential of 24% to Net Present Value (NPV) of $135 a share. We are also encouraged that the stock has traded above its 200-day average for almost a month signaling a rising trend by that measure.
NPV is supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) for natural gas and oil. First quarter operating results released today highlighted growing oil production. Natural gas promises future profits as it accounts for 37% of the energy content of reserves and just 10% of current revenue. Pointing to expected oil price recovery, futures prices for the next six years averaged $66 a barrel recently.
Originally published on April 29, 2009