Earlier this morning, CNOOC
CNOOC, the only Chinese oil company allowed to enter contracts with international oil players to explore the areas of China's coast (which allows it, at no cost, to acquire a 51% stake in any successful discovery), announced that revenue for the first half of 2006 came to roughly $6 billion, a 43% increase over last year's period. (For currency translation purposes, $1 = 7.974 yuan.) Growth has been driven by a 7.4% gain in production volume, higher realized oil and natural gas prices (up 42% and 7.6%, respectively), and a 59% jump in marketing revenue.
Net income growth was pretty impressive as well, weighing in at $2.04 billion, slightly ahead (3%) of Street expectations and representing a 38% jump from last year's first half. That said, I never like to see income gains trail revenue growth. It's usually a sign of margin weakness, and that was indeed true in this case. A quick look at CNOOC's results shows that its net margin had fallen from 36% to 33.6%, primarily due to a 53% increase in operating expenses (not helped by a $249 million windfall tax) and a 241% increase in financing costs.
While this decline in margins isn't a deal breaker in terms of making a positive investment decision about CNOOC, it does make me more cautious, especially since rival PetroChina
All in all, I believe that shares of CNOOC will probably reward investors in the long term, but I continue to favor PetroChina as the premium play in China's oil sector.
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