Stock of the Week: CNOOC

Chinese oil set to benefit from high gas prices for time to come.

Andrew Willis 3 August, 2021 | 4:28AM
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Andrew Willis: Oil producers have been enjoying rallying prices in the COVID recovery, but not all oil majors are equal – a Chinese firm with some significant advantages seems to have been left behind.

CNOOC produces offshore oil for China at an all-in cost of 30 US dollars a barrel. We expect oil prices beyond 60 US dollars a barrel for at least another 6-12 months, and we think CNOOC is trading at around half of what it should be going for.

The stock is also on the list of blacklisted Chinese stocks that U.S. president Joe Biden upheld and expanded in June, to ‘address the threat from investments that finance the Chinese military’. CNOOC delisted from the NYSE in March, but continues to trade – albeit on thin volume - on the TSX.

Senior equity analyst Chokwai Lee says supply and demand dynamics look set to support current oil price levels with the recovery in demand progressing well alongside the continued vaccine rollout, and an overall decline in infections.  

Among Chinese oil majors, CNOOC is our preferred pick. Its exploration business has lower labour costs to maintain, has access to financing from state-owned banks to support growth and might not even need the money considering its dividend of around 8% currently…

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
CNOOC Ltd ADR118.50 CAD-2.07Rating

About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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