CNOOC Limited’s 2023 total oil and gas output beat the high end of its guidance by 2.3%. In addition, the company raises the output guidance for the coming two years and targets at least 6.3% output CAGR in the next three years. With capex becoming more stable, the company will be able to increase its payout going forward. We adjust our 2023/24/25 earnings forecasts by -3%/+1%/+8% and reiterate our BUY call with target price increased to HK$16.88.
Key Factors for Rating
Its total oil and gas output reached 675m BOE in 2023, up 8.2% YoY and 2.3% above the high end of its guidance. For 2024, the company now looks at a total output of 700-720m BOE, up 3.7-6.7% YoY, with 13 new projects scheduled to start production during the year. Compared to its previous guidance, the company lifts its guidance by 1.4-2.9%.
The company also raises the low end of its output guidance for 2025 by 6.8%. For the coming three years, the company targets output CAGR of 6.3- 7.1%, up from 5.6-6.1% three-year forward output CAGR of last year.
Its capex in 2023 should reach about RMB128bn, close to the high end of its increased guidance of RMB120-130bn. For 2024, the company’s capex budget is RMB125-135bn, changing by -2.3% YoY to +5.5% YoY. As we are getting towards the end of the “Seven-Year Action Plan” in increasing reserve and output, the company’s capex tends to be flat going forward. This will enable it to raise dividend payout over the longer term.
Regarding exploration, the company targets a reserve replacement ratio of 130% in 2024, still a high level considering its output is getting bigger.
Despite the higher-than-expected output, we trim our 2023 earnings forecast by 3% as the average oil price ended up below our forecast (Brent at US$82.2/bbl vs forecast of US$86/bbl) and we also assume RMB3bn charge for additional mining rights for 2017-23. However, we increase our 2024 and 2025 earnings forecasts by 1% and 8% respectively mainly to reflect higher outputs.
Key Risks for Rating
Sharp fall in oil price.
Higher-than-expected costs.
Valuation
We increase our SOTP NAV from HK$19.01 to HK$19.37 after the changes in our earnings forecast and rolling over the base year from 2023 to 2024.
Hence, we raise our target price from HK$16.57 to HK$16.88 as we still set our target price at the average discount (widened from 12.8% to 13.4%) to our NAV since early 2016. This puts us at 5.1x 2024E P/E.