J.P. Morgan: CNOOC’s third-quarter profit weighed down by impairments; fourth-quarter output recovery hinges on Lingshui gas field restart

Why did third-quarter profit fall short of expectations?

CNOOC’s third-quarter net profit under International Financial Reporting Standards was approximately 33 billion yuan, up 2% year on year and down 29% quarter on quarter, below the approximately 40 billion yuan expected by JPMorgan and the buy side. The bank believes the main reason was an impairment charge of 7.2 billion yuan on overseas oil and gas assets; excluding one-off items, earnings were broadly in line with expectations.
The company attributed the impairment to changes in the operating environment and earnings expectations. Another pressure on overseas operations was that management cited geopolitical uncertainty as one reason overseas production fell 6% year on year in the first three quarters of 2026.
Revenue growth did not translate into corresponding profit growth: third-quarter revenue rose 14% year on year, but reported all-in cost per barrel of oil equivalent increased from 31.1 dollars in the second quarter to 32.2 dollars.

JPMorgan partly attributed the 6% quarter-on-quarter and 11% year-on-year declines in domestic natural gas production in the third quarter to the shutdown of the Lingshui 17-2 gas field after a fire. Management confirmed that the facility remains on schedule to resume production in the fourth quarter.
Management considers the disruption’s impact limited and reiterated its 2026 production guidance of 780 million to 800 million barrels of oil equivalent, approximately 0.3% to 2.9% above actual production in 2025. Production in the first three quarters reached 593.7 million barrels of oil equivalent, or approximately 74% to 76% of full-year guidance; on that basis, approximately 186 million to 206 million barrels of oil equivalent must be produced in the fourth quarter.

JPMorgan cut its 2026 net profit forecast by 5% because of the asset impairment; at the same time, it raised its 2027 net profit forecast by 2% on higher expected average domestic natural gas selling prices. Its updated model forecasts net profit of approximately 173 billion and 158.6 billion yuan for the two years, respectively.
The bank maintained its Overweight ratings on the A and H shares and raised its June 2027 target prices from 43 to 45 yuan and from 30 to 31.5 Hong Kong dollars, respectively. The targets use discounted cash flow analysis, with an additional 60% A/H premium assumption for the A-share valuation.

Crude oil accounts for more than 70% of CNOOC’s production. JPMorgan believes the company would benefit from a short-term rise in oil prices resulting from an escalation of conflict in the Middle East, and estimates that each 1 dollar per barrel change in oil prices affects net profit by approximately 2%.
Weaker oil prices would work against this assessment; the bank also identifies delays in production increases at projects in Guyana or Brazil as downside risks to its rating and target price. Although JPMorgan rates both CNOOC and PetroChina Overweight, it prefers the latter.