Goldman Sachs Bullish on "Big Three Oil Companies": Next Wave of "Valuation Realignment to Global Standards" Rerating Expected

The valuation discount of China’s three major oil and gas giants is being re-priced due to changes in cash flow and cost curves. Goldman Sachs believes that the strong cash flow generation ability demonstrated by China National Offshore Oil Corporation (CNOOC) and China National Petroleum Corporation (CNPC) over the past three years, combined with leading free cash flow yields, is likely to drive their valuations toward global peers.

According to Chasing Wind Trading Platform, Goldman Sachs analyst Amber Cai stated in a report released on March 12, 2026, that CNOOC and CNPC have ranked among the top global peers in capital return on investment, but their current valuation multiples still show a significant gap compared to industry peers. Over the past decade, CNOOC has traded at an average discount of about 42% relative to E&P industry peers.

The report significantly raised CNOOC’s 12-month target price from HKD 21.10 to HKD 31.00, a 47% increase, with the implied valuation discount narrowing to 6%. The target price for CNPC’s H-shares was raised from HKD 8.60 to HKD 11.50, and the A-shares target price from RMB 11.80 to RMB 15.30.

Meanwhile, Goldman Sachs maintained a neutral rating on Sinopec and raised its H-share target price from HKD 3.60 to HKD 4.90, and its A-share target price from RMB 4.80 to RMB 6.70. The upward revisions mainly reflect earlier valuation benchmarks rather than fundamental improvements, as the oversupply in the chemical products market weakens its profitability compared to upstream.

CNOOC: The Most Cost-Effective Tier Globally, Largest Revaluation Potential

Goldman Sachs considers CNOOC the most logically clear and resilient target among the recent upward revisions. The report notes that the average breakeven oil price for CNOOC is about $30 per barrel, and future production expansion will mainly be driven by low-cost projects in near-shore China and Guyana.

In terms of cash flow, Goldman Sachs estimates CNOOC’s FCF breakeven oil price as low as $27 per barrel, with a dividend breakeven oil price around $48 per barrel. It expects the 2027 FCF yield and dividend yield to be approximately 11% and 5%, respectively.

CNOOC has already increased its minimum annual dividend payout ratio for 2025-2027 from 40% to 45%, further strengthening its shareholder return commitments.

Goldman Sachs has sharply raised CNOOC’s target multiple from 3.0x to 4.6x (above the 2014-2026 historical average by 0.5 standard deviations). The new implied EV/DCF multiple still trades at a 6% discount compared to industry peers, and Goldman Sachs expects this discount to gradually narrow as valuation convergence progresses.

CNPC: Green Energy Substitutes and AI Cost Reductions Open Up Long-Term Breakeven Downward Space

Goldman Sachs’s bullish view on CNPC focuses on the visible path of continued cost reductions. The report states that CNPC is currently at the higher end of the oil and gas production cost curve, with a 2025 breakeven oil price of about $62 per barrel. Cost-saving measures are expected to reduce this figure to $54 per barrel before 2035.

First, through self-supplied green electricity. CNPC’s oil and gas fields are highly overlapping with China’s renewable energy resource zones. By replacing imported grid electricity (about RMB 0.6-0.7 per kWh) with self-generated green power (about RMB 0.3 per kWh), Goldman Sachs estimates this could contribute approximately $5 per barrel in cost savings before 2035.

Second, through AI and digitalization initiatives. Since 2021, CNPC has accelerated its digital and intelligent transformation strategy, aiming to fully establish “Digital China Petroleum” by 2035. Based on the International Energy Agency’s estimates that digital technologies can cut 10-20% of production costs, Goldman conservatively estimates an additional $5 per barrel in cost reduction potential.

In terms of cash flow, Goldman Sachs expects CNPC’s 2027 FCF yield to be about 10% and dividend yield about 5%. Under baseline capital expenditure and dividend coverage assumptions, the breakeven oil price could fall below $50 per barrel. The current H-share price for CNPC is about 8% below the new target price, with an estimated potential upside of approximately 18% for A-shares.

Sinopec: Excess Chemical Capacity Suppresses Free Cash Flow, Maintains Neutral

Compared to the other two, Goldman Sachs’s stance on Sinopec is more cautious. The report points out that Sinopec’s profitability elasticity in a high oil price environment has a clear ceiling:

Its EBITDA rises in tandem with Brent oil prices up to about $90 per barrel, but beyond that, domestic refined oil pricing policies begin to compress refining margins, outweighing upstream and inventory gains, leading to downward pressure on EBITDA.

Additionally, Sinopec’s high exposure to imported crude oil via shipping makes it more sensitive to increases in international freight rates and official crude oil sales prices. The Chinese refined oil pricing formula does not fully reflect these additional costs, further squeezing refining margins.

Valuation Discount and Global Peer Comparison: The Core of Revaluation

From a global comparison perspective, the valuation discounts of CNOOC and CNPC are particularly pronounced. Goldman Sachs data shows that, based on forecasted 2027 FCF yields, CNOOC is about 11% and CNPC about 10%, both among the top globally.

Using EV/GCI (Enterprise Value / Total Invested Capital), CNOOC is at 0.54x and CNPC at 0.38x, well below the levels of integrated global oil and gas companies like Shell (0.56x), Total (0.52x), and ExxonMobil (1.12x).

Goldman Sachs’s analysis indicates that while CNOOC and CNPC’s capital returns are among the best globally, their current valuation multiples still lag significantly. Over the past decade, CNOOC has traded at an average discount of about 42% relative to E&P peers, with its target price implying a narrowing discount to just 6%.

The baseline assumption uses Brent oil at $70 per barrel for 2026-2027, but Goldman’s commodities team believes the overall risk is skewed upward, having raised overseas gas price forecasts on March 8, 2026. Notably, the JKM spot price forecast for 2026 was increased by 42%, providing additional support for upstream natural gas profitability for CNPC.