Hold-rated CNOOC Limited (CEO), with estimated net present value [NPV] of $180 a share, offers portfolio representation mainly in crude oil production and non-U.S. domicile. First half results reported today scored strong volume and profit gains despite a Chinese “windfall profits” tax, which takes some 40% of incremental crude oil price.
A high 77% cash flow margin and low 23% corporate tax rate help counter the extra crude oil levy of RMB 10 billion (US$ 1.4 billion). Production volume gained ten percent in the latest quarter over a year ago. Natural gas price under $4 a thousand cubic feet is absurdly low at one-fifth the going rate for imports in Asia. The potential for ultimate market price for natural gas is not reflected in stock price and given little credit in estimated NPV. Meanwhile, crude oil price trends upward with the latest quote of $118 a barrel for delivery over the next six years above the 40-week average of $107.
Originally published on August 27, 2008.