Key points of investment

Introduction: The performance is in line with expectations, the increase in storage and production continues to advance, and cost control forms the core competitiveness.

Incident: On October 24, the company announced that the 2024 Q3 net profit was 36.928 billion yuan, up 9.0% year on year and 7.7% month on month.

Due to typhoon weather and project maintenance, crude oil production declined, and natural gas production maintained month-on-month growth. 2024Q3, the company's crude oil production was 139.1 million barrels, -2.52% month-on-month, mainly affected by typhoon weather and the addition of gas pipelines to the Guyana project; natural gas production was 235.5 billion cubic feet, +1.73% month-on-month, mainly due to production contributions from oil and gas fields such as Bozhong 19-6 and Enping 20-4 in China and production growth brought about by the commissioning of the overseas Guyana Payara project. Oil and gas prices fell along with international oil prices during the same period. 2024Q3, the average price of oil futures was 78.71 US dollars/barrel (-7.43% month-on-month); the company achieved an average oil price of 76.41 US dollars/barrel, -6.69% month-on-month, and an average gas price of 7.75 US dollars/thousand cubic feet, or -1.77% month-on-month. The cost of barrel oil increased slightly, and operating costs increased a lot from month to month.

In 2024 Q3, the main cost of the company's barrel oil was $28.93 per barrel of oil equivalent, +2.8% month-on-month. Among them, the month-on-month changes in operating fee/DDA/disposal fee/sales management fee/taxes other than income tax were +1.31/-0.11/-0.08/+0.01/-0.11 USD/barrel, respectively, and maintained a strong competitive advantage.

The second phase of Deep Sea 1 was successfully put into operation, and the signing of a new contract in Brazil is expected to become a growth point in the future. 2024Q3 obtained a total of 2 new discoveries and successfully evaluated 5 oil and gas structures. Among them, the new discovery of 10-3 East Wenchang showed good prospects for medium- and deep natural gas exploration in the western Pearl River estuary basin. It successfully evaluated Caofeidian 23-6. The reserve scale continues to expand, and it is expected to become a large and medium-sized oil field. Oil and gas field development projects such as Bozhong 19-2, Wushi 17-2, Liuhua 11-1/4-1, and Shenhai-1 Phase II were successfully put into operation, helping to increase the peak annual output of “Deep Sea 1” by 50%. Five new Mozambican offshore blocks and 4 Brazilian offshore exploration blocks have been signed. Among them, the Brazilian SM0183 block is located in the Santos Basin in Brazilian waters. The basin has previously been discovered by large oil fields such as Libra and Buzios. The company owns 100% of the rights and will contribute significant results in the future.

The increase in storage and production continues to advance, and capital expenditure boosts steady growth. The company implemented active capital expenditure to ensure the achievement of the strategic goal of increasing storage and production. The capital expenditure budget for the full year of 2024 reached a record high of 125-135 billion yuan, and the 2026 guide output will reach 0.81-0.83 billion barrels, an increase of 19%-22% over 2023. In the first three quarters of 2024, the company's capital expenditure was about RMB 95.34 billion, an increase of 6.6% over the previous year.

Investment recommendations and conclusions: The company is the largest producer of offshore crude oil and natural gas in China, with assets in more than 20 countries and regions around the world. In order to cope with external uncertainty, the company continuously implemented engineering standardization and strengthened project management capabilities. In the face of falling international oil prices during the same period, the company maintained its competitive advantage with excellent cost control, implemented active capital expenditure to guarantee output growth, and ensure steady growth against the trend in performance. The company's net profit for 2024-2026 is estimated to be 136.8/145.9/151.7 billion yuan, +10.48%/+6.63%/+3.96% year-on-year. The current market value corresponds to PB of 1.79/1.61/1.45 times, maintaining a “buy” rating.

Risk warning: risk of falling short of expectations in oil field exploration and project commissioning, risk of domestic and foreign business development and operation, geopolitical risk, risk of falling oil prices, risk of international political changes.