Incident: On November 6, 2024, the company's official website revealed that the company's Changhu Northwest project in Canada has been safely put into operation.

Comment:

The peak output of the project is 8,200 barrels/day, and overseas resource development capacity continues to improve. The project is located in Albert, Canada. The main production facilities include the construction of a new surface well site and 4 transmission lines. The project uses steam gravity assisted drainage (SAGD) production method and deployed 8 production well pairs. It is expected to achieve peak production of 8,200 barrels of crude oil per day in 2025. In Canada, the company has 100% working rights in the Long Lake and three other oil sands projects located in the Asapasca region in northeastern Alberta. In recent years, thanks to the company's advances in oil sands mining technology, the advancement of pipeline construction, and the increasing refinement of cost reduction and efficiency, the Southwest Changhu project has been rapidly put into production, and the output reached 0.061 million barrels of oil equivalent per day in 2023. The commissioning of the Changhu Northwest Project in Canada marks the continuous improvement of the company's overseas resource development capabilities and creates a solid resource foundation for the growth of the company's production.

Overseas production grew by leaps and bounds, helping the company increase storage and production. In the first three quarters of 2024, thanks to the increase in production brought about by the commissioning of the Payara project in Guyana, the company's overseas oil and gas production reached 172.9 million barrels of oil equivalent, a sharp increase of 12.2% over the previous year, and overseas production accounted for 32% of the company's total output. Following the commissioning of the Changhu Northwest project in Canada, the Brazilian Mero3 project is being tested and is expected to be put into operation within the year. The increase in overseas production has made an important contribution to the company's overall production.

The company's cost advantage is prominent, and production continues to increase due to high capital expenses. The company further consolidated its competitive cost advantage. The main cost of barrel oil in the first three quarters was $28.14 per barrel of oil equivalent, -0.8% over the same period last year. Among them, the operating cost of barrel oil was 7.21 US dollars/barrel oil equivalent, -1.5% year over year, and drum oil DD&A was 13.96 US dollars/barrel oil equivalent, +0.8% year over year. The main reason was the combined impact of changes in production structure and exchange rate changes. The commissioning of the new oil field effectively covered the company's barrel oil operating costs, depreciation and amortization. In a single season of 2024Q3, the main cost of the company's barrel oil was US$28.93 per barrel, +0.6% YoY, +3.7% month-on-month, of which the operating costs were US$8.02 per barrel, +5.0% YoY, and +19.5% month-on-month, mainly due to the combined impact of workload arrangements. The company's total capital expenditure budget for the full year of '24 is 125-135 billion yuan. Production targets for 2024 and 2025 are set at 700-720 and 780-800 million barrels of oil equivalent, respectively. The central production growth rates for 2024 and 2025 are 4.7% and 11.3%, respectively. The company will push for the project to be put into operation according to the plan, and push “increase storage and production” to a new level.

Profit forecasting, valuation and rating: The company thoroughly lays out oil and gas exploration and development, continuously strengthens overseas resource development capabilities, further stabilizes its performance base, and is expected to cross the oil price cycle. We maintain our profit forecast for the company. The company's net profit for 2024-2026 is estimated to be 145.7/158.2/163.9 billion yuan respectively, equivalent to EPS of 3.07/3.33/3.45 yuan/share, respectively, maintaining the company's “buy” rating.

Risk warning: Crude oil and natural gas prices fluctuate greatly, exploration and development progress falls short of expectations, and fluctuating costs.