Oil Prices Fall Below $60: In-Depth Analysis of CNOOC's Growth Logic

Recently, the international crude oil market has experienced sharp fluctuations. Brent crude fell below the $60 per barrel mark for the first time since February 2021. As of December 2025, Brent crude futures closed at $58.92 per barrel and WTI crude at $55.27 per barrel, both at near five-year lows [1][2]. This round of decline is mainly driven by the following factors:

• Supply surplus pressure
  : OPEC’s monthly report shows that the third quarter has turned into a supply surplus pattern, with the market expecting a daily surplus of about 1.9 million barrels in 2026 [3]
• Geopolitical easing expectations
  : Progress in Russia-Ukraine peace talks has led to expectations of looser sanctions on Russia, exacerbating the outlook for ample supply
• Weak demand
  : China’s latest economic data shows industrial production growth has fallen to a 15-month low, deepening market concerns about demand prospects

Indicator	Value	Industry Position
Net Profit Margin	31.83%	Excellent
Operating Margin	44.59%	Outstanding
ROE	16.65%	Stable
P/E	7.13x	Significantly Undervalued

CNOOC has shown extremely strong profitability. A net profit margin of 31.83% is leading in the energy industry, mainly due to its low-cost operation strategy and efficient project management capabilities [0]. The company’s operating margin is as high as 44.59%, indicating excellent performance in cost control.

: Conservative. The company exhibits high depreciation/capital expenditure ratio characteristics, meaning future profits still have room to be released as investment projects gradually mature [0].

: Low risk. The company’s current current ratio is 2.36 and quick ratio is 2.32, both at healthy levels, showing ample short-term solvency and financial flexibility [0].

The company’s latest annual free cash flow (FCF) reached 97.532 billion yuan, and the EV/OCF multiple is only 4.20x, indicating that the market’s valuation of the company’s cash creation capacity is extremely conservative [0]. Although conservative accounting policies may suppress current book profits, they have laid a solid foundation for future performance flexibility.

As a pure upstream oil and gas producer, CNOOC’s revenue is highly correlated with oil prices. If oil prices remain low, it will have an impact on its:

• Direct pressure on
  revenue scale
• Squeeze on
  profitability
• Constraints on
  capital expenditure plans

However, CNOOC has the following structural advantages that can effectively hedge against the risk of falling oil prices:

1. Cost advantage
   : As China’s largest offshore oil and gas producer, CNOOC’s barrel oil cost is competitive globally, especially with more risk resistance in a low oil price environment

2. Valuation protection
   : The current 7.13x P/E and 1.16x P/B have fully reflected pessimistic expectations. DCF valuation shows a reasonable value range of $473-$1222, with huge upside potential compared to the current price (minimum 2122% upside potential) [0]

3. Low Beta characteristics
   : The company’s Beta coefficient is only 0.33, with low correlation to the broader market, providing certain defensiveness during market volatility [0]

4. Stable financial policy
   : Conservative accounting treatment and high liquidity ratios ensure the company can maintain strategic flexibility even during industry downturns

DCF analysis based on three scenarios shows:

Scenario	Intrinsic Value	Relative to Current Price
Conservative Scenario	$473.29	+2122.0%
Base Scenario	$583.92	+2641.4%
Optimistic Scenario	$1,221.89	+5636.6%
Weighted Average	$759.70	+3466.7%

Even under the most conservative assumptions (zero growth, 2% perpetual growth rate), the company’s intrinsic value is still more than 20 times higher than the current stock price, indicating that the market may have overpriced the pessimistic expectations of falling oil prices [0].

The company’s 5-year cumulative return reached 202.13% and 3-year return 110.89%, showing long-term value creation capabilities [0]. The current low valuation status provides significant safety margins for long-term investors.

Oil prices falling below $60 do put pressure on CNOOC’s short-term growth, but the company’s core growth logic has not fundamentally shaken:

• Long-term energy demand
  : Although short-term demand is weak, the global energy transition is a gradual process, and fossil energy will still maintain an important position in the foreseeable future

• Cost competitiveness
  : Low barrel oil cost ensures the company can maintain profitability and cash flow during industry downturns

• Resource reserves
  : As a national energy company, CNOOC has abundant offshore oil and gas resource reserves

• Sustained low oil prices
  : If Brent oil prices linger below $60 for a long time, it will compress the company’s profit margins

• Geopolitical risks
  : Changes in the Russia-Ukraine situation may have a major impact on the global energy trade pattern

• Energy transition policies
  : The global carbon neutrality process may have a structural impact on long-term oil and gas demand

: Hold/Buy on Dips

The current stock price has fully reflected pessimistic expectations, providing good long-term investment value. However, considering the uncertainty of oil prices and macro environment fluctuations, it is recommended that investors be patient and wait for clearer trend signals.

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[1] Yahoo Finance Hong Kong - <After-Hours Energy> Supply Surplus and Russia-Ukraine Progress Double Pressure Brent Falls Below $60 to Close at Near Five-Year Lows (https://hk.finance.yahoo.com/news/能源盤後-供給過剩與俄烏進展雙重施壓-brent跌破60美元-收近五年低點-213214046.html)

[2] Yahoo Finance Hong Kong - Brent Crude Falls Below $60 Affected by Supply Surplus and Russia-Ukraine Ceasefire Talks (https://hk.finance.yahoo.com/news/布倫特原油跌破60美元-受供應過剩及俄烏停火談判影響-143119051.html)

[3] Yahoo Finance Hong Kong - OPEC Monthly Report Reverses Oil Market Forecast! Q3 Turns to Supply Surplus, Expects Balance Next Year (https://hk.finance.yahoo.com/news/opec月報逆轉油市預測-q3轉為供應過剩-估明年趨平衡-151003167.html)

[0] Jinling API Data (Company Finance, Valuation, Technical Analysis)