CLSA has downgraded its 2004 earnings forecast for China energy giant CNOOC after it announced offshore oil production was unlikely to increase this year. The earnings per share (EPS) forecast has been lowered by 14 per cent to 109.6 fen, with a net profit of nine billion yuan, and the 'underperform'' recommendation maintained.
CNOOC has encountered operation problems (geological complexity and lack of experience extracting heavy-type crude oil) at several of its newest fields which are likely to wipe out the production growth forecast made two months ago. Lost production is estimated at five to six million barrels, implying offshore China oil production of 98-99 million barrels this year, about the same as 2003.
Doubt is also cast on management's forecast leap in offshore China production to 127 million barrels in 2005, much of which is to be derived from heavy-crude fields in Bohai Bay.
Units costs will increase as overheads from the new oil fields are spread over stagnant production. Offshore lifting costs last year are estimated to have increased 5 per cent and CLSA has revised its estimate for this year to a 7 per cent increase.
The EPS forecast for next year is raised 3 per cent, factoring in production of 122 million barrels and no further increase in unit costs.
Despite the 89 per cent and 62 per cent outperformance of CNOOC last year, PetroChina and Sinopec continue to look more interesting, says CLSA. The counter closed at HK$16.05 on Friday. CLSA has a 12-month price target on the stock of $19.50, based on the December 24 price of $16.80.
