CNOOC Plans To Boost Exploration Activities And Reserves

Over the next seven years, CNOOC Limited (NYSE:CEO) intends to increase exploration activities and proven oil and gas reserves in China by two-folds.

The raised target will require the company to accelerate capital spending. The announcement closely follows the president’s decision to improve national security by boosting domestic production and reserves. Accordingly, CNOOC’s management has approved plans to increase spending on exploration.

However, no details with respect to the breakeven of reserve targets on crude oil and natural gas were disclosed. In December 2018, CNOOC’s chairman stated that the firm will make a record investment in the next few years to enhance exploration projects and reach target.

It will be a challenge for CNOOC to double natural gas reserves over the period as its current base is small. Moreover, the company will be required to make large discoveries similar to the size of Lingshui and higher investment commitments.

CNOOC’s deepwater gas discovery — Lingshui 17-2 — is located 150 kilometers off the southern most province of Hainan and is estimated to have a proven geological reserve of more than100 billion cubic meters. China's first subsea deep-water project is projected to produce about 3-3.5 billion cubic meters gas every year.

CNOOC is likely to increase focus on deepwater exploration as its shallow-water basins mature. Deepwater exploration is a risky and costly affair as well as the ongoing volatility in global oil prices put pressure on the company’s ability to control expenses.

At the end of 2017, CNOOC reported net total reserves of 2.613 billion barrels of oil equivalent, the best figure since 2008.

In 2018, CNOOC made several domestic discoveries that include Bozhong 19-6 and Bozhong 29-6 in the Bohai Bay area off north China. For 2018, the company had set a capital expenditure target of 70-80 billion yuan ($10.34-$11.81 billion), but investment in the first half totaled only 21 billion yuan.

The company is likely to release details about production target and capital expenditure at a strategic outlook meeting on Jan 23.

Zacks Rank & Stocks to Consider

CNOOC currently carries a Zacks Rank #3 (Hold).

A few better-ranked players in the energy space are NextEra Energy (NYSE:NEE) Partners L.P. (NYSE:NEP) , Sunoco L.P (NYSE:SUN) and TransCanada Corporation (TO:TRP) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Based in Juno Beach, Florida, NextEra Energy Partners was formed by NextEra Energy, Inc in 2014 to acquire, manage and own contracted clean energy projects with stable long-term cash flows. The partnership delivered average positive earnings surprise of 99.1% in the last four quarters.

Headquartered in Houston, TX, Sunoco operates as a wholesale fuel distributor. The company is expected to witness year-over-year earnings decline of 38.9% in 2018.

Calgary, Alberta-based TransCanada Corporation (TRP) is a premier energy infrastructure provider in North America. The company generated average positive surprise of 19.1% in the trailing four quarters.

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