Key investment points: High oil prices combined with rising oil and gas production, and the company's impressive Q3 performance was in line with expectations. In the first three quarters of 2018, the company achieved operating income of 3.56 billion yuan, +506.71%, net profit of 636 million yuan, +640.54%; of these, Q3 revenue was 1,413 million, +200.18%, +19.58%, net profit of 405 million, +432.84%, and +176.99% month-on-month. The company's Q3 performance was impressive, basically in line with our previous expectations. Among them, the Howard & Borden shale block merger in August 2017 led to a significant year-on-year increase in the company's revenue and net profit. The sharp increase in Q3 net profit month-on-month was mainly due to financial expenses of US$368.61 million arising from the repayment of prior loans and one-time amortization of bond issuance expenses of US$368.61 million, which diluted the company's Q2 net profit. Production in the Howard & Borden shale block increased rapidly. The company produced and sold 3.6618 million barrels of crude oil and 5515 million barrels of oil equivalent in 2018. As of September 30, 2018, it has produced and sold a total of 9.323,500 barrels of crude oil and 1,423,700 barrels of natural gas equivalent, which is in line with our previous forecast of annual sales of 11.6 to 12.6 million barrels of crude oil and 1.7 to 1.9 million barrels of oil equivalent for natural gas. Among them, the overall production of Hoople's conventional oil and gas block did not change much, and the increase in oil and gas production mainly came from the Howard & Borden shale block. Oil and gas extraction in the Howard & Borden shale block is inexpensive and highly profitable. The company's conventional oil and gas consumption costs and operating costs for the Hoople oil field are about 18.5 and 17.2 US dollars/barrel, respectively, while the corresponding depreciation and operating costs for the Howard & Borden shale block are only 8 and 12 US dollars/barrel, respectively. In August 2017, the shale block also drastically reduced barrel oil costs. The company's complete cost dropped sharply from $64 per barrel in 2017 H1 to $30.69 per barrel, and has now dropped to around $28 per barrel. It is expected that the company will achieve oil prices above 50 US dollars/barrel in the future, with considerable profitability. It is expected that before 2019H2, due to the influence of Iran, Venezuela and other countries, OPEC oil supply will be in a tight trend. At the same time, US shale oil is limited, global crude oil supply is tight, and the oil price center will still rise slightly. At the same time, the Permian Basin oil price discount of 15 to 20 US dollars/barrel will cause the company to achieve oil prices of about 50 US dollars/barrel; 2019H2 and later, US shale oil capacity restrictions are expected to be lifted. International crude oil prices may be impacted to a certain extent, but at the same time, shale oil prices will gradually return to normal in the future. The price of oil will remain above $50 per barrel. risk factors. 1. Risk of oil price fluctuations; 2. The company's shale oil and gas production falls short of expectations; 3. Risk matters accumulated during the company's previous management term have not been fully disclosed; 4. The company's equity is scattered, and control may change at any time. Earnings forecasts, valuations and ratings. The company focuses on oil and gas extraction and sales. Oil and gas extraction costs are controllable, reserves are considerable, and production continues to grow. It is expected that the oil price will stabilize above 50 US dollars/barrel. We expect the company's revenue from 2018 to 2020 to continue to grow. Based on the prudent assumption of achieving a slight increase in oil prices, and fully considering the impairment of some other investment projects and the impact of hedging, the company's net profit attributable to shareholders of listed companies in 2018/19/20 is estimated at 8/14/1.6 billion yuan, corresponding to EPS of 0.12/0.20/0.23 yuan, respectively. On this basis, referring to international and domestic peer valuations, combined with merger and acquisition valuations in the primary market, we gave the company a target price of 3.60 yuan based on the average of the company's valuations of 15 times PE and 1.8 times PB in 2019 to maintain the “buy” rating.