Incident: On January 3, 2024, the company announced the latest developments in the exploration and development of the oil field project.

The Wensu project produced 580,000 tons in 2023, and a new breakthrough was achieved in the exploration of the Kekeya Oilfield. 1) In terms of production, in 2023, the company's Wensu project produced a total of 588,800 tons of oil. As of December 31, 2023, the daily oil production in Wensu reached 1,663 tons. 2) In terms of exploration, the company's Wensu project deployed 58 exploration and evaluation wells in 2023, with 52 successful wells, with a success rate of 89.66%. Throughout the year, the focus was on exploration and evaluation of the upper and lower parts of the F1 fault zone in the Cocoa Oilfield, taking into account risk exploration of the F2 and F3 fracture zones and the Laolongkou tectonic zone. At present, the company has basically discovered the upper oil and gas reserves in the F1 fracture zone of the Kekeya Oilfield. According to the company's preliminary estimates, the upper plate of the fracture zone has proven oil geological reserves of 10.923,800 tons; in addition, the upper Panhongjing area of the F1 fracture zone of the Kekeya Oilfield discovered sweet spot areas of the Chigbulak Formation carbonate rocks, and obtained high-yield oil flow after oil testing in some wells. The Gu Qian Mountain structural zone has implemented some oil and gas content in the thick IV oil formation., the Red 52 fault discovered the sweet spot in the bottom conglomerate of the IV oil formation, and the area has already been put into production 14 The average output of a single well is 14.2 tons. In 2024, the exploration and deployment of the company's Wensu project will focus on discovered tectonic zones or lithological confinement areas to carry out detailed exploration. The main preliminary exploration and evaluation targets are the F1 fault zone, the lower southern Chinese system, the Red 90 fracture zone, and the IV oil group in the F5 fracture zone. While striving to reach a new level of annual production, the preparation and declaration of 10.923,800 tons of proven petroleum geological reserves was completed.

The exploration and development of the Kazakhstan-2 project continues to advance. 1) Tenge project: The mineral rights area is 154 square kilometers. In 2022, the Tenge Oilfield approved the C1 geological reserve of 63.97 million tons and the C2 geological reserve of 14.57 million tons, with a total C1+C2 geological reserve of 78.54 million tons; in 2023, the Tenge project put into operation a total of 16 new wells. As of December 31, 2023, the Tenge project was producing 27 wells, producing 540.50 tons of oil per day, and 86,700 square meters of Nissan with gas and natural gas. 10,000 tons, with a cumulative production of 1.61 million square meters of natural gas and associated gas. Currently, only 1.34% of the C1 geological reserve has been extracted from the Tenge project. Subsequent companies will speed up the deployment and development of new wells, improve production capacity construction, and increase oil field production as soon as possible. 2) Coastal project: In 2023, a total of 3 new N1, N2 and M1 wells were drilled, and reliable oil layers were discovered in the Upper Cretaceous Norman stage; in 2024, the company will prepare and declare coastal project reserve reports, implement test mining networks, carry out test mining work, and increase exploration efforts in new regions and new levels.

Investment advice: Oil prices have remained volatile recently. Follow-up trends suggest focusing on the implementation of OPEC+ production cuts in the first quarter of 2024. However, with low inventories and demands from Middle Eastern countries, the current bottom oil price support is strong, and oil prices are still expected to remain stable and high. Due to the high growth rate of the company's crude oil production combined with integrated cost advantages, we expect the company's net profit to be 8.54/11.21/1,341 billion yuan in 2023-2025, EPS corresponding to current share capital of 2.14/2.80/3.35 yuan respectively, and PE corresponding to the closing price on January 3, 2024 will be 9/7/6 times, respectively, maintaining the “recommended” rating.

Risk warning: the risk of a sharp drop in oil prices; the risk of the exploration process falling short of expectations; the risk of overseas oil field operations falling short of expectations.