Is CNOOC LIMITED a Value Stock Now?

Do you want to partner the Chinese Government in the Oil and Gas Business in China?

CNOOC Limited, the largest offshore drilling company in China, is majority-owned by China National Offshore Oil Corporation. The company is a member of the country’s government-controlled oil oligopoly along with PetroChina (owned by China National Petroleum Corporation – CNPC) and Sinopec(officially, China Petroleum and Chemical Corporation).

CnoocLtd1

Here is the plus point!

CNOOC receives, at no cost, a 51% stake in ANY offshore project in which a foreign oil company is involved – a big advantage over its competitors, who do not have this right.This means that CNOOC can let foreigners shoulder the exploration costs and reap the production benefits.

Do you want to own a business like this?

Lets look at the financial results for the past 10 years:

Screen Shot 2014-08-07 at 12.53.20 AM

 

Source from msnmoney.com

As we can see, it has steady Sales and EBIT Growth. But in 2013, it was a negative growth. But overall, it is profitable!

Dependent on Growth of China

Demand for oil in the emerging economy is colossal, at 9.0 million barrels per day, and the country produces less than half that.

Furthermore, the government is promoting a shift away from the dirty coal  that powers most of their electrical generators to cleaner natural ga. In both cases, CNOOC stands to benefit: its parent’s expansion of refining capacity means it has a larger market to expand production, while its investment in Liquefied Natural gas infrastructure means it will not only be able to produce the stuff, but transport it around the country as well.

Competition

As the largest offshore explorer in China, CNOOC faces little competition. Petrochina, owned by China National Petroleum Company) and Sinopec both drill and refine petroleum, and both are large enough to effectively compete, but both are controlled by the Chinese government. CNOOC doesn’t compete with the oil majors  because it has the right to take a majority share, without cost, in the projects of any Western oil company that wants to drill offshore China, so it actually benefits when foreign oil companies enter the country.

Valuation

With EPS of $126 RMB, it is about USD $20.44.

With the current share price at about $180, the PE Ratio is 8.8.

Despite the slow growth due to the China Economy,  a PE of 8.8 still seem like quite a good catch for a company with pretty clear backing from the Chinese Government.

Disclaimer: The author does not own any of CNOCC’s stocks at the point of writing and is not recommending the purchase of this stock.

 

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Mind Kinesis Research Team

 

 

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