CNOOC shares hit by sober outlook

Analysts downgrade oil producer after lower-than-expected output forecasts

PUBLISHED : Tuesday, 21 January, 2014, 2:18pm
UPDATED : Wednesday, 22 January, 2014, 1:31pm

CNOOC shares fell the most in more than two years yesterday after the energy giant announced lower-than-expected projections for its output this year and next. Shares in the mainland's dominant offshore oil and gas producer fell 6.3 per cent to HK$13.08.

The firm said on Monday that it expected oil and gas output this year to reach between 422 million and 435 million barrels of oil equivalent (boe), representing growth of between 2.4 per cent and 5.6 per cent from last year's 412 million boe.

The management also reiterated its goal of raising output by an average of 6 to 10 per cent annually between 2011 and 2015 but warned it was facing growing uncertainty because of to delays in government project approvals, weather and operational challenges.

Although last year's production surpassed CNOOC's target of 397 million to 407 million boe, analysts and investors were disappointed by the management's guidance for this year and next year's outlook. Some even questioned whether the firm could reach the 2015 target.

"For CNOOC to deliver their production target, production needs to increase by between 21 per cent and 46 per cent in 2015," Sanford Bernstein senior analyst Neil Beveridge said in a research note. "This is enormous and increasingly looks unrealistic.

"While CNOOC does have some major projects starting up in 2014, the path towards even the lower end of guidance looks challenging."

Beveridge cut his estimate of CNOOC's output for next year - excluding that from Canada's Nexen which it bought early last year - to 415 million boe from 450 million boe - representing 5 per cent average annual growth between 2011 and 2015.

Nomura Securities head of regional oil and gas research Gordon Kwan, who cut his recommendation on CNOOC from "buy" to "reduce" and his profit estimate by 3 per cent for both this year and next, said in a note that CNOOC's guidance implied worsening output falls at its main oil and gas fields.