CNOOC Raises Dividend 15%

We expect to raise Net Present Value [NPV] for hold-rated CNOOC Limited (CEO) from our current estimate of $125 a share, if confirmed by the detailed disclosure we await for 2007. Preliminary results released today encouraged the board of directors to approve a dividend increase to an indicated annual yield of 2.7%.

Earnings per share were ahead of our expectations, at the same time they were held back by a special oil tax sometimes called a windfall profits tax. Rather than a windfall, higher oil price is a necessary, convincing indicator of the need to invest in more supply and to conserve demand, we believe. Aside from the tax, revenues should be up sharply in 2008 with volume and price gains. After special oil taxes, but before income tax, Ebitda Margin appears competitive at about 70%. NPV approximation by cash flow multiple depending on reserve life suggests NPV could be $140 a share, close to current stock price.

Originally published on March 27, 2008.