Matters:

Recently, new progress has been made in unconventional natural gas exploration in CNPC's Southwest oil and gas field. The SXM block of the SXM block of the oil and gas field tested more than 800,000 square meters of dense gas per day, and the unimpeded flow rate exceeded 2 million square meters.

Guoxin Chemical's opinion:

1) From a medium- to long-term perspective, China's natural gas demand has maintained rapid growth, and unconventional natural gas has become an important force in increasing production: in 2023, China's natural gas demand showed restorative growth, with annual natural gas consumption of 390 billion cubic meters, an increase of 7.2% over the previous year. According to the 14th Five-Year Modern Energy System Plan, natural gas consumption will reach 420-460 billion cubic meters in 2025, with a compound growth rate of about 7%. The peak of natural gas consumption is expected to occur in 2040, about 700 billion cubic meters. The share of unconventional natural gas in the country's natural gas production increased from 35% in 2018 to 43%, becoming an important growth force in natural gas production. Currently, China's unconventional natural gas is in the early stages of exploration, and the detection rate is clearly low. It is the main force for increasing storage and production in the future.

2) Unconventional natural gas mainly includes dense gas, shale gas, and coalbed methane. China has achieved commercial extraction: unconventional natural gas refers to natural gas that cannot obtain natural industrial production with traditional technology and requires new technology to improve reservoir permeability or fluid viscosity to be economically exploited. It mainly includes dense gas, shale gas, coalbed methane, etc. China's dense gas exploration is in the early and middle stages. Compact gas has the advantages of a high degree of implementation of reserves, relatively clear understanding of reservoirs, the formation of an applicable development technology system, and relatively low development risk. The Ordos Basin is the focus of dense gas development, with a long-term production scale of 700-800 trillion cubic meters. China's shale gas development is in its infancy. Currently, shale gas extraction technology is independent and autonomous. Future exploration and development will focus on exploration and development in new areas and excavation of old areas and improving recovery rates. There is plenty of room for development in new zones, new strata and new types of fields, and shale gas production is expected to reach 40 billion cubic meters in 2030. China's coalbed methane has now successfully established two major coalbed methane industry bases in the Qinshui Basin and the eastern edge of the Ordos Basin. The future development direction is the development of new middle- and shallow coalbed methane regions and large-scale development of deep coalbed methane. The plan is to achieve coalbed methane production of 30 billion cubic meters by 2030, and gradually achieve an annual output of 100 billion cubic meters over the long term.

3) The company's unconventional natural gas business plan is clear, and the prospects for increasing production are broad: the amount of shale gas, dense gas and coalbed methane resources in the company's mining area is 46.7 trillion cubic meters, 19.96 trillion cubic meters, and 13.4 trillion cubic meters, respectively. The company's natural gas growth during the “14th Five-Year Plan” period mainly came from unconventional resources. It is estimated that unconventional natural gas production will increase by 3 times compared to the end of the 13th Five-Year Plan period. The company's compact gas added 1.4 trillion cubic meters of proven reserves in Ordos and other regions, with a new production capacity of 65.5 billion cubic meters/year, with an output of 40 to 45 billion cubic meters in 2025; shale gas is expected to have proven or basic proven reserves of 4 trillion cubic meters in the middle and deep layers of 3,500 to 4000 meters in southern Sichuan, with a new production capacity of 35 billion cubic meters per year, and an output of 270 to 30 billion cubic meters in 2025.

4) Investment advice: We maintain the forecast for the company's 2024-2026 net profit of 1735/1863/2029 billion yuan, with diluted EPS of 0.95/1.02/1.11 yuan respectively, 10.6/9.9/9.1x for current A shares and 7.5/7.0/6.4x for H shares PE, maintaining a “buy” rating.