CNOOC: Outlook Remains Bullish

CNOOC, Ltd. (CEO) reported slightly higher net income for 2007 due to oil tax and increased production. However, the company continues to achieve steady growth in oil and gas production and reserves. Although there are concerns related to the volatility in global oil prices, higher operating costs, and regulatory changes, we think that the company's current valuation does not fairly reflect its positive production growth profile and leverage to the Chinese natural gas market.

Therefore, we maintain our Buy rating on the stock. CNOOC Ltd. has the exclusive right to jointly conduct exploration and production activities in areas off China's coast with other international oil and gas companies. The company's ability to enter into production-sharing contracts with foreign companies allows it to acquire, at no cost, an interest of up to 51% in any successful discovery off China's coast.

Based on our estimate for fiscal year 2008 earnings per ADR, the stock is trading at 11.7x, which is higher than the industry mean and its Chinese peers. Based on our estimate for fiscal year 2009 earnings per ADR, the stock is trading at 11.1x, which is still higher than the industry mean and its Chinese peers. Using a P/E multiple of 12.5x our fiscal year 2009 earnings per ADR estimate yields a target price of $170.00, which we believe appropriately reflects the company's growth prospects.

Comments

[Streetwalker]

mmmm

[Streetwalker]

My serious apology to the author(s). The last message was post by pure mistake.

[WILLS]

WILLS