CNOOC Shares Upgraded To Buy At BOCOM

CNOOC Ltd (ADR) (NYSE: CEO) is poised to benefit from the expected oil price recovery, BOCOM International’s Tony Liu said in a report. He upgraded the rating for the company to Buy, while raising the price target to HK$10.70.

CNOOC is a pure upstream and oil-heavy company, and generated about 85 percent of its total revenue from sales of oil in 2015. CNOOC was the hardest hit when the oil price crashed from over US$110/bbl in 2011-2013 to US$99/bbl in 2014 and then fell further to US$52/bbl in 2015, triggered by global oversupply, analyst Tony Liu noted.

Oil Price Recovery

“As global oil markets start to rebalance this year, oil prices have started to recover.” Liu wrote. Brent crude price recovered from US$31/bbl in January to over US$47/bbl in May and is expected to rebound to US$55/bbl by yearend. Upstream oil companies would benefit from this uptrend of oil prices in the back half of 2016.

The analyst expects CNOOC’s shares to follow the uptrend in oil prices. He added, “Meanwhile, full year production is likely to beat expectation. Also, the reduction of capex and lower operating cost should lead to superior cash flow and dividend this year, after a surprising 92.8% dividend payout ratio last year.”