We are downgrading CNOOC Limited (CEO) ADRs to Underperform from Outperform. We believe that the company has lost its attractiveness as a pure Chinese offshore oil explorer.
While domestic initiatives continue, CNOOC is currently exploring various international upstream projects to cope with the country’s rising demand. We initially thought the $3.1 billion Bridas deal to be a prudent step, but now we are concerned about the challenging Argentine tax regime.
The company is currently experiencing a downward movement in the performance of its ADRs, which we believe will again run into rough weather with oil prices hovering in the mid-$70s. We recommend investors to go for attractively valued peers such as Sinopec.