Seeking Alpha: CNOOC Has Growth Issues, But A Low Valuation Too

Production growth is a familiar issue for a number of large-cap energy companies, with ExxonMobil (XOM), BP (BP), and Royal Dutch Shell (RDS.A) all looking for minimal annual production growth over the next three years. Instead, these companies have largely prioritized their balance sheets and cash payouts to shareholders over growth. CNOOC (CEO), China's largest offshore operator, should be looking at better production growth in the coming years (possibly in the high single-digits over the next five years), but recent shortfalls have brought that growth into question, and a lot depends on ongoing turnaround efforts at the company's Nexen subsidiary.

The compensation for this less-than-perfect near-term performance is an undemanding valuation. With below-average lifting costs, above-average exposure to oil, and better growth prospects, I don't think it is unreasonable to give CNOOC an EBITDA multiple on par with global majors. Doing so produces a fair value above $196 share, leading to more than 10% upside and a respectable dividend to boot.

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CNOOC Has Growth Issues, But A Low Valuation Too