Event

The company disclosed its mid-2022 report, and its first-half results exceeded expectations.

In the first half of 2022, the company achieved revenue of 4.269 billion yuan, an increase of 102.35% over the same period last year, a net profit of 1.614 billion yuan, a year-on-year increase of 433.14%, and a net profit of 1.604 billion yuan, an increase of 430.64% over the same period last year. Of this total, Q2 achieved a net profit of 1.087 billion yuan in a single quarter, an increase of 106.46 percent over the previous quarter. The performance greatly exceeded expectations: the forecast for the first half of the year's return net profit exceeded 1.303 billion, that is, the forecast Q2 was not less than 776 million yuan, actually exceeding 40.07%.

Brief comment

The rise in volume and price contributed to the better-than-expected performance in the first half of the year, with crude oil production and sales growing brightly in the first half of this year. WTI oil prices averaged 101.59 US dollars per barrel per month in the first half of this year, up 64.01 per cent from the same period last year. The average monthly price of natural gas in Port Henry is US $6.07 per million British heat, up 86.62% from the same period last year. At the same time, the company's oil and gas production and sales grew faster than expected. In the first half of this year, the company produced 6.7775 million barrels of oil, an increase of 1.2943 million barrels, or 23.6 per cent, over the same period last year; and natural gas production of 15.5731 million Mcf, an increase of 2.5427 million Mcf or 19.51 per cent over the same period last year. Among them, the company had 33 new online shale oil net wells during the reporting period, and the total number of online shale oil net wells reached 638 by the end of the reporting period. With the rise of volume and price, the company's cash flow has greatly improved, which not only meets the needs of capital expenditure, but also helps to repay interest-bearing liabilities, reduce financial costs, and further improve the net profit and return on capital.

When oil prices remain high and volatile, the hedging end of the company is expected to further reduce losses in the second half of the year as a necessary condition for bank loans. American shale oil companies generally carry out hedging operations. In theory, because the hedging end is equivalent to short selling in the derivatives market, when international crude oil prices rise sharply unilaterally, they will face greater losses. With the rise of international oil prices in 2021, the lock-in price of distal hedging contracts was also low before and high after. Crude oil prices rose unilaterally in the first quarter of 2022, and the company lost a lot of money at the hedging end. Looking forward to the second half of the year, the price of hedging contracts due to stock will gradually move up, the hedging side of the company is expected to further reduce losses, and there is still room for improvement in performance compared with the previous year.

Due to the low rate of return on historical capital, carbon neutral vision constraints, superimposed supply chain disturbances and slow shale oil production expansion, the company is expected to enjoy high oil and gas boom and extend dividends.

The low historical rate of return and the carbon-neutral vision have restricted the willingness of US shale oil companies to expand production significantly in the short and medium term, while the increase in production in the short and medium term has also been slow due to future policy uncertainties, supply chain problems and labor shortages. therefore, in this round of oil and gas boom, the incremental flexibility of the supply side is relatively limited and will remain high before the demand side is significantly damaged, and the company is expected to gradually enjoy high oil price dividends.

Earnings forecasts and valuations:

Assuming that the impact of historical illegal guarantee litigation is not taken into account (the company's estimated liability is 530 million yuan based on 1/3 of the result of the first instance of the case), the estimated net profit for 2022-2024 is raised to 34.31,37.16 and 4.096 billion yuan, corresponding to EPS 0.50,0.55,0.60 yuan, maintaining "increasing holdings".

Rating.

Risk Tips:

Global crude oil demand has declined; OPEC or US shale oil production has exceeded expectations; and the company's illegal guarantee lawsuit has resulted in adverse results.