Zacks_Analysts' Blog : CNOOC Sells Qatar Block Stake - Analyst Blog

CNOOC Ltd. (CEO) will divest a 25% stake in its Qatar's Block BC (pre-Khuff) offshore exploration license to TOTAL SA (TOT). The transaction will be carried out through a subsidiary, CNOOC Middle East (Qatar) Ltd. for an undisclosed amount.

The Block BC, located about 130 kilometers east of the Qatari coast, covers an area of 5,649 square kilometers, with water depths ranging from 15 to 35 meters. CNOOC Middle East will continue to enjoy operatorship of the offshore block with 75% stake.

Qatar, the major exporter of liquefied natural gas (LNG) of the world, secures numerous exploration agreements with the industry’s most noted oil majors aiming to increase output outside the world’s biggest gas reservoir, the North Field. However, the Persian Gulf kingdom has halted any new development at the field until at least 2014.

In August 2009, China’s biggest offshore oil producer, CNOOC clinched a 25-year deal with the Government of the State of Qatar for Block BC. This was the first exploration venture by the company in the Middle East with Qatar Petroleum that was tagged with at least $100 million in investments and a schedule to drill of three exploration wells by 2014.

Earlier in May 2011, JX Nippon Oil & Gas Exploration Corp. entered into a 30-year gas exploration agreement with Qatar Petroleum off the emirate’s northeastern coast, in Block A. Looking back, Royal Dutch Shell Plc (RDS.A) and China National Petroleum Corp. had signed a 30-year contract to explore Block D in May last year.

Last quarter, CNOOC made significant development in its scheduled project agenda. The company acquired a 33.3% undivided interest in Chesapeake Energy Corporation's (CHK) Niobrara project. Additionally, CNOOC and Tullow Oil plc entered into acquisition agreements for the latter’s one-third interest in each of the Exploration Areas 1, 2 and 3A in Uganda.

In a favorable oil price environment, the Chinese offshore giant gave a commendable performance both in terms of production growth and cost control measures, and will remain proactive on exploration investments.

Our long-term Outperform recommendation reflects the company’s unique position as a pure oil player. CNOOC also holds a Zacks #2 Rank, which translates to a short-term Buy rating.