UBS China Oil and Gas: Deep-Sea Exploration Opportunities and Longer-Term Oil Price Recovery
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UBS highlights growing market attention on deep-sea oil and gas exploration as the US permitting framework accelerates. MODEC management reports a significant increase in orders compared with three years ago, driven primarily by deepwater and ultra-deepwater field developments in South America and Africa. The Stabroek block in Guyana, operated by ExxonMobil at 45% with Chevron at 30% and CNOOC at 25%, has four projects under construction — Uaru at 250,000 bpd in 2026, Whiptail at 250,000 bpd in 2027, Hammerhead at 150,000 bpd in 2029, and Longtail at 250,000 bpd in 2030. UBS lowers its 2026 Brent forecast by USD 2 per barrel to USD 62 per barrel but maintains its 2027 and 2028 forecasts at USD 70 and USD 75 per barrel, anticipating a 1.9 million bpd supply surplus peaking in the first quarter of 2026 before gradually improving. UBS identifies CNOOC, COSL, and Jereh as potential deep-sea beneficiaries. Target prices are raised for PetroChina A/H to CNY 14.0 and HKD 11.5, and for CNOOC H to HKD 30.0 and CNOOC A to CNY 42.0, both maintaining Buy ratings. Chinese oil companies offer an average 2026 dividend yield of 5.2%, above the 4.8% overseas peer average.