Why CNOOC is predicting a soft production in 2014

And it eyes spending 15-30% more.

According to Barclays, having exceeded the top end of its 2013 production guidance, CNOOC has guided to a soft 2014, as expected. 

It also expects to spend ~15-30% y/y more on capex in 2014 while guiding to a ~5-6% y/y fall in Nexen's output.

Here's more from Barclays:

We cut EPS by 0-1% but retain our OW rating, noting inexpensive valuations and the recent 12% share price fall that may have baked in the disappointment from the downbeat 2014 outlook. Catalysts include over 10 project start-ups in 2014, which we think lay the foundations for a strong 2015.

2013 production ahead of guidance: CNOOC's 2013 production, ex Nexen, came in at 351mboe, up 2.4% y/y – 1.7% higher than our est. and 0.8% higher than the higher end of CNOOC's 338-348mboe guidance. 4Q13 output rose 6.4% q/q and flat y/y.

CNOOC shared the peak production estimates from its major new projects of 2014 but its guidance of 353-366mboe, ex Nexen, implies just a 0.6-4.3% y/y rise. We maintain our 365mboe forecast for 2014E implying +4.2% y/y.

CNOOC retained its 2010-15E guidance, but we sense confidence ebbing, with management noting execution, regulatory and weather challenges. We est. +14.5% y/y in 2015 (cf. 21% to meet 6%) implying 4.9% for 2010-15 (6-10% guidance).

While Nexen's 2013 output (+1% y/y) exceeded our est., CNOOC now guides to a ~5-6% y/y drop in 2014 with new project start-ups back-ended and mature fields in natural decline. CNOOC also expects annualized capex at Nexen to rise ~10% y/y to ~US$3.5bn as it completes execution of the 70kbpd Golden Eagle project.

CNOOC spent US$12.1bn in capex in 2013 cf. its US$12-14bn guidance and guides to US$14-16bn in 2014 or +15-30% y/y. We lift our 2014-15E capex est. by 7-12% to US$14.7-15.1bn. Offshore China capex may rise ~25% y/y in 2014, boding well for COSL where CNOOC makes up c.70% of revenues.

The 12% share price correction since Dec13 appears to have anticipated the downbeat 2014 but could still come under pressure as consensus est. are cut. Still, with valuations inexpensive at 7.6x 2014 P/E and with over 10 projects expected to start-up in 2014, laying the foundation for a strong 2015, we retain our OW with a HK$19 PT.