CNOOC more attractive in the long term

By Patricia Lai
CNN.com Writer

HONG KONG, China -- Despite being over-subscribed by global investors, some analysts are lukewarm to CNOOC, China's third-largest oil company IPO.

CNOOC will have its trading debut in New York on February 27 and in Hong Kong on February 28. Analysts say they prefer downstream business-oriented oil stocks to upstream business companies in anticipation of an oil price fall this year.

CNOOC begins the Hong Kong portion of its global share offering to raise up to $1.5 billion. It is offering 82.12 million shares to Hong Kong retail investors at a range of $0.66 to $0.82.

"The price is rather conservative, I believe it can be on the higher end," says an ING Baring energy analyst. But the firm expects oil prices would drop to $22 per barrel this year from last year's $27 per barrel.

"Base on this assumption, we believe oil companies with revenue that mainly comes from upstream business like crude oil exploration would suffer more," the analyst said, adding that Sinopec would be more attractive.

Frank Li, Indosuez W.I. Carr Securities petrochemical analyst in Shanghai, also favors oil companies that specialize in midstream or downstream businesses such as oil refining and distribution.

" We expect a soft-landing in oil price this year, around $30 to $25 per barrel. But if there's a hard-landing that oil price goes below $25 per barrel, downstream companies would suffer also from drop in net profits."

However, international investors snapped up the chance to tap into one of the world's thirstiest energy markets.

Global investors applied for US$2.6 billion worth of CNOOC shares, almost twice the size of the company's planned share sale.

"It is more attractive in the long term because of its potential of growth. It has younger oil wells compared with others. We have a slightly decline in production projection for other China oil companies," says the ING Baring analyst.

CNOOC president and chief operating officer Fu Chengyu said on Thursday in New York that the response to the international offering was satisfactory. He denied mainland authorities had blocked plans to pipe natural gas to Shanghai.

Its former underwriter Salomon Smith Barney called off CNOOC's first IPO attempt in October 1999 due to lack of investor demand, after offering shares at between $1.08(HK$8.46) and $1.23(HK$9.61).

CNOOC
Sinopec
PetroChina

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