Buy-recommended CNOOC Limited (CEO) has appreciated to a McDep Ratio of 1.12 where stock price exceeds Net Present Value (NPV) of $135 a share. In its 2010 Strategy Review on February 2, CNOOC startled investors by raising its forecast of 2010 volume to 275-290 million barrels equivalent, up from our estimate of 254 (MR 11/3/09) and up 25% from 226-228 for 2009.
We keep our buy rating because stock price trend continues upward and we may well see a further positive surprise when final results for 2009 are reported next month. Meanwhile, we add higher volumes to our projections. NPV is in line with cash flow and reserve life in an industry context. Higher reserve life could trigger higher NPV as could higher cash flow margin beyond what we currently estimate for 2010.
An ambitious program to bring nine new projects to production offshore China gives Chairman Fu Chengyu and President Yang Hua the confidence to make their bold forecast.
Originally published on February 3, 2010.
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