Incident 1:

On October 28, 2024, China National Petroleum Corporation held a mobilization and deployment meeting for natural gas winter insurance and supply. Dai Houliang, chairman and party secretary of China National Petroleum Corporation, attended the meeting and stressed that we should keep in mind General Secretary ****'s major instructions, resolutely implement the decisions and arrangements of the Party Central Committee and the State Council, overcome difficulties and take responsibility, make every effort to complete the natural gas insurance and supply tasks this winter and spring, and make new and greater contributions to promoting the continuous recovery of China's economy and ensuring that the masses stay warm through the winter.

Incident 2:

On November 20, 2024, China National Petroleum Corporation held a regular quality management work meeting for the fourth quarter of 2024.

Huang Yongzhang, member of the party group, deputy general manager and safety director of CNPC, attended the meeting and stressed that it is necessary to keep a clear mind, understand the situation clearly, face up to problems, effectively enhance the sense of responsibility and urgency to do a good job in quality work, jointly resolve outstanding problems, and lay a good foundation for the successful conclusion of the “14th Five-Year Plan” and the smooth start of the “15th Five-Year Plan”.

Comment:

1. Resolutely do a good job in natural gas insurance and supply, and unswervingly promote the high-quality development of enterprises. In response to the 2024-2025 natural gas winter insurance and supply work, Dai Houliang emphasized the need to raise political standing, earnestly implement the deployment requirements of the Party Central Committee and the State Council and party group work arrangements, enhance the sense of responsibility and urgency of winter insurance and supply in winter, strengthen trend research and judgment, systematic thinking and global planning, and resolutely fight the active battle for natural gas winter insurance and supply, and protect the bottom line of residents' natural gas consumption. It is necessary to take into account the reality of the unit and department, insist on identifying major risks, eliminating major accidents, strengthening bottom-line thinking and red line awareness, stepping up efforts to investigate and manage hidden hazards, prevent and mitigate risks, and ensure the smooth development of insurance and supply work and the overall stability of the enterprise.

In response to production and operation work in the fourth quarter of 2024, Huang Yongzhang put forward two requirements. First, we must focus on key points, grasp the key points, and unswervingly complete the goals and tasks for the whole year. It is necessary to thoroughly study and implement the spirit of the Third Plenary Session of the 20th CPC Central Committee, raise our standing, further improve the quality control system, continue to further promote special actions to upgrade products and improve project quality, carry out solid investigation and rectification of procurement material quality issues, and continuously enhance brand value.

Second, it is necessary to consolidate the foundation, consolidate responsibilities, promote work through examinations, plan ahead, and meet new challenges with fresh thinking. It is necessary to optimize the layout, promote equipment updates in batches, and organize the selection of the group company's first quality award. Supervisors and leading cadres at all levels should take the lead in fulfilling their quality responsibilities to ensure that every job is managed, handled, and held responsible. The Ministry of Quality, Health, Safety and Environmental Protection should do a good job in the 2024 quality performance assessment to promote accountability and implementation of work through assessment.

The second and fourth quarters welcomed the peak natural gas season. CNPC's stable resource base is expected to continue to benefit. In recent years, the “double carbon” target has driven the energy transition, and China's apparent natural gas consumption has been growing strongly.

China's macroeconomic economy recovered steadily in 2024, and demand for gas from various gas sectors, especially commercial gas, continued to grow. In the first three quarters, China's apparent consumption of natural gas reached 316.6 billion square meters, an increase of 10.0% over the previous year. China's natural gas consumption is seasonal. Affected by heating demand, natural gas consumption in the first quarter and fourth quarter is generally higher than in the second and third quarters. The peak season for natural gas demand is expected to drive up the supply and price of natural gas, and the profits of natural gas supply companies are expected to increase, which is beneficial to upstream natural gas production and sales leaders. CNPC is the leading domestic gas production, sales, storage and transportation leader. The company's natural gas production in the first three quarters of 2024 was 107.8 billion square meters, accounting for 59% of the country's production. In the first three quarters of 2024, benefiting from continued demand in the natural gas market and narrowing losses on imported natural gas, the company's natural gas sales business achieved operating profit of 25.3 billion yuan, +29.7% over the same period last year. The company optimizes the resource structure, market layout and user structure in an integrated manner, and the efficiency of the entire natural gas industry chain is expected to continue to improve.

3. Unconventional oil and gas help replace production reserves, accelerate the layout of shale oil and coal gas exploration and development CNPC launched the land-based shale oil revolution in December 2018, discovered the Qingcheng shale oil field with geological reserves exceeding 1 billion tons in 2021, completed the preparation of the “CNPC Action Plan to Promote the Shale Oil Revolution” in 2023, and proposed to build 3 to 5 full-scale efficient production demonstration zones at the end of the 14th Five-Year Plan.

CNPC continues to deepen the evaluation of shale oil and gas resources and accelerate the increase in shale oil and gas storage and production. Shale oil and gas exploration and development has pressed the “acceleration key” for high-quality development, and reserves and production have reached a new level. In 2023, CNPC's annual shale oil production jumped to 3.92 million tons, accounting for 3.1% of the company's total crude oil production. In terms of production and reserve replacement, CNPC added 0.884 million tons of shale oil production in 2023, and the company's total crude oil production increased by 0.309 million tons during the same period. Shale oil has become one of the main sources of increase in the company's crude oil production, effectively offsetting the impact of declining production in the company's old oil fields and successfully helping the company replace production.

CNPC innovation has formed the theory of deep coal and gas enrichment and key technology for development, promoting major world-class breakthroughs in deep coal and gas exploration and development at the eastern edge of the Ordos Basin. The Exploration and Development Research Institute under CNPC has formed an innovative consortium with units such as Changqing Oilfield, Coalbed Methane Company, Jidong Oilfield and Liaohe Oilfield to clarify coal and gas geology and development characteristics, innovate geological theoretical understanding, develop and improve multi-stage fracturing technology for horizontal wells, and vigorously promote the development of the coal and gas industry. As of August 2024, CNPC has added proven coal and gas geological reserves of 336.6 billion cubic meters and predicted reserves of 1 trillion cubic meters in the Ordos Basin, implementing China's first trillion cubic meter coal and gas atmospheric zone, forming the Daji Block and the Nalin River - Mizhi North 2 100 billion cubic meter storage zones. The coal and gas development technology series 1.0 is basically defined. The output is expected to reach 2.5 billion cubic meters in 2024.

4. Promote the spirit of petroleum, promote the energy revolution, and continue to promote scientific and technological innovation in exploration and development as an important state-owned enterprise related to national energy security and the lifeblood of the national economy. CNPC has resolutely implemented the new national energy security strategy, vigorously promoted the spirit of petroleum and the Daqing spirit, taken more measures to enhance efficient energy supply capacity, and continuously improve the level of resilience and safety in the oil and gas industry chain supply chain, making important contributions to ensuring the country's energy security. The company unswervingly promotes the energy consumption revolution, thoroughly implements the “three major actions” of green enterprise construction, clean energy contributor action, carbon cycle economy pioneer action, and the “top ten projects” for energy saving and carbon reduction; unswervingly promotes the energy supply revolution, thoroughly implements a new round of breakthrough strategic actions in prospecting, comprehensively promotes the integrated development of oil and gas and new energy sources, and bravely acts as the “pillar” for safety and supply; Unswervingly promote the energy technology revolution, accelerate the construction of two original technology strategies, and brave the “national team” to stand on its own feet; Unswervingly promote the energy system The revolution comprehensively promotes the modernization of corporate governance systems and governance capabilities, and bravely acts as a “model” for state-owned enterprise reform; strengthens international cooperation in all aspects and bravely acts as the “main force” for high-quality joint construction of the Belt and Road Initiative.

China Petroleum Exploration and Development Research Institute (RIPED) is CNPC's comprehensive research institution for global oil and gas exploration and development. It is mainly responsible for global oil and gas business development strategic planning and research, basic theory and technology research and development for major applications in oil and gas exploration and development, technical support and production technology services for global oil and gas business, and training of high-level scientific and technological talents. Comprehensive research capabilities are in a leading position in the field of domestic upstream petroleum research. The Exploration and Development Research Institute takes ensuring the country's energy security as its mission, follows the development strategy of service group companies, supports business development at home and abroad, and leads the progress of China's oil and gas technology.

5. The reform of state-owned enterprises has deepened. The company has carried out long-term principles through the cycle, and CNPC has deepened the reform of the system and market mechanism, and accelerated the construction of a management system and organizational system compatible with world-class enterprises, which has played a significant role in improving enterprise efficiency. Since 2023, in the new oil price fluctuation cycle, CNPC's net profit to mother has been significantly higher than the trend line formed by historical net profit data. The company's net profit to mother was +0.7% YoY in the first three quarters of 24, and +2.3% month-on-month in Q3, better than the historical period of high oil prices, indicating that the company's resilience in dealing with cyclical changes in the oil price and demand for refined products has increased markedly, and the advantages of integrating the entire industry chain have become more prominent.

Long-term enterprises usually have high-quality shareholder backgrounds, excellent management capabilities, reasonable industrial chain layout, continuous investment in R&D, and a strong sense of social responsibility. These characteristics enable “long-term” enterprises to excel in the three dimensions of corporate growth, capital market feedback, and social evaluation, and achieve steady growth and sustainable development. In an environment of fluctuating oil prices, CNPC has a high-quality shareholder background, excellent management capabilities, reasonable industrial chain layout, continuous R&D investment, and a strong sense of social responsibility. It is expected to cross the energy cycle and achieve steady and sustainable growth.

Profit Forecasts, Valuations, and Ratings

As a leader in domestic oil and gas resources, the company makes every effort to ensure energy supply, strengthen the development of unconventional oil and gas resources and research and development of exploration technology, and deepen reforms to promote high-quality development. It is expected to cross the energy cycle and achieve steady and sustainable growth. We maintain our profit forecast for the company. The company's net profit for 24-26 is estimated to be 175.9/180.3/185 billion yuan, respectively, and the corresponding EPS is 0.96/0.99/1.01 yuan/share, respectively, maintaining the “buy” rating of the company's A+H shares.

Risk warning: the risk of falling crude oil and natural gas prices, and the risk of declining refining and chemical sentiment.