Citi Research visited CNOOC's (00883) Gaolan Terminal in Zhuhai yesterday. These gas produced from the South China Sea is transmitted to the terminal through underwater pipelines for dehydration, refrigeration and fractionation.
Management said that there are still plenty of oil & gas resources in China offshore and that Bozhong gas field is a good example. According to management, only 23%/7% of the oil/gas resources in shallow water have been explored. The exploration rate is even lower for deep water at 7%/4%, respectively.
While management didn't explicitly tell us the average production cost of gas in the South China Sea, it mentioned that the production cost in Panyu cluster ranges from Rmb1.3/cm to Rmb2.0/cm. Taking into the higher gas selling price in Southern China, Guangdong in particular (city gate gas price at Rmb2.06/cm including VAT), Citi believes that CNOOC's gas is still profit making.
Citi maintained its "buy" rating on CNOOC, with a target price of HK$16.5.
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