Key takeaway

In 1Q26, disruption in the Strait of Hormuz caused oil shortages in the Asian market. CNOOC optimized the shutdown maintenance schedule of oil and gas fields based on external environmental changes and accelerated the commissioning of new wells. Among them, oil and gas fields such as Kenli 10-2 and projects such as Yellowtail in Guyana mainly contributed to the incremental output in Q1. Oil and gas production reached 205.1mn barrels of oil equivalent this quarter, +8.6% YoY, supporting YoY profit growth. The market is currently overly optimistic about the pace of easing in the Middle East situation, but underlying conflicts are becoming more evident. The market has begun to price in an increase in forward oil prices, and inflation risks are gradually emerging. CNOOC remains the most attractive energy company for allocation.

Event

CNOOC released its 1Q26 report. In 1Q26, revenue reached RMB116.08bn, +8.6% YoY. Net profit attributable to shareholders of the parent company reached RMB39.14bn, +7.1% YoY. Net profit attributable to shareholders of the parent company excluding non recurring items reached RMB39.04bn, +5.4% YoY.

Quick Take

Reasonable maintenance adjustments and faster new well commissioning drive production growth in Q1. In 1Q26, the company achieved oil and gas sales revenue of RMB97.0bn, +9.9% YoY. In terms of realized prices, in 1Q26 the realized price of oil liquids increased +4.5% YoY to USD75.9/barrel, while the realized price of natural gas decreased -1.2% YoY to USD7.69/thousand cubic feet. In terms of production, disruption in the Strait of Hormuz led to oil shortages in the Asian market. The company optimized shutdown maintenance schedules for oil and gas fields and accelerated the commissioning of new wells in response to external environmental changes. Oil and gas production reached 205.1mn barrels of oil equivalent this quarter, +8.6% YoY. Among this, oil liquids production reached 158.5mn barrels of oil equivalent, +8.9% YoY, and natural gas sales reached 272.5bn cubic feet, +7.7% YoY. Specifically, oil and gas fields such as Kenli 10-2 and projects such as Yellowtail in Guyana mainly contributed to the incremental production in Q1.

High oil prices drive rapid growth in capital expenditure, and progress in reserve expansion and production growth may accelerate. In 2026, the company expects capital expenditure of RMB112–122bn. In 1Q26, disruption in the Strait of Hormuz may push up the oil price center. The company accelerated the deployment of exploration wells and adjustment wells and sped up capacity construction. Quarterly capital expenditure reached RMB33.02bn, +19.1% YoY. Among this, capital expenditure for exploration, development, production, and others was RMB4.99bn, RMB21.81bn, RMB6.01bn, and RMB0.20bn, respectively, +13.0%, +24.0%, +12.8%, and -45.7% YoY. Supported by relatively high-intensity capital expenditure, the company successfully achieved four new discoveries in 1Q, completed appraisal of 12 oil- and gas-bearing structures, and brought three new projects into production, and the pace of reserve additions and production growth is expected to accelerate.

The market is gradually starting to price in an increase in long-term oil prices, while CNOOC’s strategic value and dividend attributes make it a preferred choice. From a long-cycle perspective, the Kondratieff Wave depression phase is often accompanied by declining economic growth and intensified geopolitical maneuvering. At this stage, crude oil, as an irreplaceable strategic physical asset, not only shows resilience against inflation but can also exhibit wider fluctuations or an upward shift in its price center under a stagflation environment, outperforming general financial assets. The market currently overly optimistically estimates the pace of resolution in the Middle East situation, but underlying conflicts are becoming increasingly evident, and the market has begun to price in rising long-term oil prices, with inflation risks gradually emerging. Against this backdrop, CNOOC, with a dividend payout ratio above 45%, represents a typical dividend a sset characterized by “free cash flow + high dividends + continuous share buybacks”, and from the strategic perspective of national energy security, CNOOC remains the most worthwhile energy company for allocation.

Investment recommendation: In 2026, the risk premium on crude oil related to potential shipping disruption in the Strait of Hormuz is expected to rise, and under the new pricing paradigm, the price center of crude oil is likely to increase. We expect the company’s net profit attributable to shareholders of the parent company to reach RMB170.93bn, RMB177.33bn, and RMB183.70bn in 2026–2028, corresponding to PE of 11.1, 10.7, and 10.3, respectively, and we maintain a “buy” rating.

Risks

1. Risk of sharp fluctuations in international oil prices: The company’s performance is highly linked to oil prices, and the average Brent crude price in 2025 fell 14.6% YoY, directly compressing profit margins. Since 2026, the escalation of Middle East conflicts and disruptions to shipping through the Strait of Hormuz have pushed oil prices briefly above USD120 per barrel, but subsequent impacts from the pace of global demand recovery, OPEC+ policies, and recurring geopolitical tensions highlight risks of pullbacks from high levels and wide volatility; if oil prices return to low levels, revenue and profits will again face pressure.

2. Overseas geopolitical and policy risks: The company has a high proportion of oversea s assets, mainly concentrated in regions such as Guyana and Brazil. Currently, investment reviews in some South American countries are tightening, while geopolitical conflicts in the Middle East persist, increasing risks of project approval delays, higher tax burdens, operational disruptions, and asset impairments. Meanwhile, disruptions in key shipping routes intensify oil price volatility, indirectly affecting the stability of the company’s earnings.

3. Energy transition and low-carbon compliance risk: The “dual-carbon” policy continues to strengthen, domestic environmental protection and carbon emission controls are tightening, and the company is increasing investment in low-carbon transition. Currently, offshore wind power and CCUS projects are still in the investment stage. Capital expenditure is increasing in the short term and the return cycle is long. A slower-thanexpected transition or cost overruns will drag on overall profitability. In addition, rising carbon emission costs and higher marine environmental standards increase compliance pressure and operating costs simultaneously.

4. Production, operations, and technical risk: Offshore operations are significantly affected by typhoons and extreme weather, creating risks of production interruptions and facility damage. Deepwater exploration and development are technically difficult and capital intensive. Although the company maintains a low cost per barrel, fluctuations in exploration success rates, delays in the start-up of new projects, and weaker-thanexpected cost control may still affect production ramp-up and cash flow stability.