Fri. Jul 1st, 2022

Any hopes that the US might reverse plans to delist more Chinese companies are unwarranted, says Gary Gensler. The chair of the Securities and Exchange Commission made that clear this week.

It is too late for China’s biggest offshore oil and gas producer CNOOC, which left the New York Stock Exchange in October. US officials had previously deemed CNOOC a threat to national security. The Hong Kong-listed explorer plans to raise $ 5.5bn in a homecoming listing in Shanghai next month, just as high oil prices boost profits. But growing risks mean investors should be wary.

CNOOC’S timing might seem right. It expects first-quarter profit to grow as much as 89 percent from a year earlier. Last year, higher output and rising oil and gas prices had already tripled its net profit to Rmb70bn ($ 11bn). Its share price has surged 40 per cent in four months.

Yet a delay in the expected 2021 dividend allocation, due to listing related restrictions, knocked the shares by 3.4 per cent on Thursday. That may not be the end of it.

CNOOC needs the money to fund eight oil and gasfield projects. But the driller also plans to continue investing heavily in its expensive new renewable segment, focusing on offshore wind power. Capital spending, already up a fifth since 2019 to Rmb89bn last year, should keep expanding at that pace to 2024. Meanwhile, production costs are up over a tenth per barrel last year compared to 2020.

More potential risks lie in its stake in an Arctic liquefied natural gas project in Russia, Arctic LNG 2. Intensifying US sanctions could affect all Russia-linked offshore oil projects.

One positive catalyst could come from its asset sales. CNOOC is reportedly considering a sale of its UK North Sea portfolio, including the Buzzard field, altogether valued at as much as $ 3bn. The oilfields, which include one of the UK’s highest-producing fields, could spark a bidding war.

At least until details on that North Sea sale emerge, investors should remain cautious on CNOOC shares.

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