Skip to main content

Market Overview

Bank Of America Remains Bearish On Fundamentals For Oil In China

  • CNOOC Ltd (ADR) (NYSE: CEO) shares are still down 9 percent year-to-date, despite having jumped more than 21 percent since August 25.
  • Bank of America Merrill Lynch analyst Sonia Song upgraded the company to Buy, while raising the price target from HK$8.7 to HK$11.
  • A review of China Oil 1H results showed that E&P was a major drag, and non E&P buffer is expected to weaken in 2H15. CNOOC is expected to benefit from a near-term rally in oil prices.

Analyst Sonia Song mentioned that the 1H15 results of China Oil companies indicated that E&P was a major drag and that the non E&P buffer is expected to weaken during the second half.

Although CNOOC exhibited the best cost control capability in the first half, its core earnings decline was the highest, Song pointed out. The company is poised to benefit from an expected near-term increase in oil prices from $40 per barrel to $55 per barrel by the end of 2015.

BofA noted, “Historically, CNOOC’s share prices have high correlation to oil prices as it’s a pure oil & gas producer with 80% output being oils.”

Depletion of reserve life enabled CNOOC’s 1H production to grow by 13.5 percent year-over-year despite a 31 percent decline in its capex, Song wrote, while adding, “CNOOC’s reserve life stood at 9.7 years vs. global large cap oil average of 19-20 years. Assuming a 100% RRR (reserve replacement ratio), CNOOC’s reserve life is estimated to fall to 9.2 years in 2015. At 0% RRR, it would tumble to 8.3 years.”

CNOOC maintained its interim dividend despite the decline in its 1H15 profitability. Terming the move as “surprising,” Song said that the company would not be able to maintain the dividend from 2H15.

The report explained, “CNOOC's payout ratio is 62% at interim. If they maintain 2H dividend as well, payout would rise to 80%+. We don't think such a high payout ratio is sustainable for any company in the E&P sector.”

Latest Ratings for CEO

Dec 2020BernsteinDowngradesOutperformMarket Perform
Mar 2020CFRADowngradesStrong BuyHold
Mar 2020Credit SuisseDowngradesOutperformUnderperform

View More Analyst Ratings for CEO
View the Latest Analyst Ratings


Related Articles (CEO)

View Comments and Join the Discussion!

Posted-In: BofA Merrill LynchAnalyst Color Upgrades Price Target Analyst Ratings

Latest Ratings

FSRMorgan StanleyMaintains40.0
MEDDA DavidsonMaintains302.0
VICRBWS FinancialMaintains120.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at