CNOOC Limited (CNOOC) reported marginal growth in top- and- bottom
line during the year. However, both revenues and net income in FY 2007
were above our estimates for the year. Improved contribution from oil
and gas sales continued to support top-line growth, which was however
offset by higher operating expenses during the year. Consequently, the
company reported marginal expansion of net income in FY 2007. Going
forward, we remain optimistic about the company's performance due to
its aggressive exploration efforts and development projects, which we
expect will drive the company's production volumes in the long term.
As the company's full year results exceeded our estimates, and in line
with our revised crude oil price forecast, we are likely to revise our
rating and target price upwards in our next update report. Therefore,
even though the current target price does not support a HOLD rating,
we maintain our HOLD rating for CNOOC's common stock until we can
fully reassess the company in our next update report. In light of the
fundamental reasons outlined above, and as we anticipate a neutral
currency impact on the ADR, even thought the current target price does
not support a HOLD rating, we maintain our HOLD rating for the ADR.

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