CNOOC Limited: All Signs Point to Further Gains

After recent strong stock market performance, buy-recommended CNOOC Limited (CEO), trading above estimated net present value [NPV], presents an opportunity for investors with more than a full portfolio position to re-balance to a full position.

Its NPV increased to $108 a share from $98 on May 29 when we raised our long-term oil price assumption to $66 a barrel from $60. The rising price of oil, and the re-acceleration of volume growth next year point to further gains in NPV to justify continued investment in CEO.

We are also intrigued by a July 18 news item from Bloomberg which reported that Fu Chengyu met in China with T. Boone Pickens. Mr. Fu is chairman of CEO, a natural gas producer choked by price controls, while Mr. Pickens is co-founder of Clean Energy Fuels, Inc. (CLNE), a supplier of natural gas fuel for vehicles. A wide spread between the price of natural gas, and the price of oil creates a strong incentive to use the clean fuel for transportation while China’s relatively undeveloped infrastructure means less entrenched commitment to gasoline and diesel.

Finally, stock price momentum for CEO is positive, but the rate of advance relative to the 200-day and 60-day average is greater than for practically any of our buy recommendations.

CEO 1-yr chart:

Originally published on July 20, 2007.