China National Offshore Oil Corporation (or CNOOC Group), the parent company of CNOOC Ltd. (CEO), is heading toward an agreement to acquire 50% interest in China United Coal Bed Methane Company Limited (“CUCMB”) for 1.2 billion yuan ($181.2 million). The move reflects the group's endeavor to concentrate more on unconventional gas resources.

In 2009, CNPC has departed from the joint venture and since then CUCMB is encountering financial crisis. Presently, China Coal holds 100% interest of the CBM producer. The fund from CNOOC will likely increase annual output of China CBM to 3–5 billion cubic meters by the end of 2015.

One of the largest independent oil and gas exploration and production companies of the world, CNOOC is a new entrant in the CBM market. The company is taking efforts to fortify its natural gas businesses and this acquisition marks a part of the process.

The group's coal bed methane venture is gaining momentum. It also intends to use unconventional gas resourcesto facilitate regional clients in the northern province of Shanxi with pipeline gas, compressed natural gas, or LNG.

Likewise, China Petroleum & Chemical Corporation or Sinopec (SNP), the second largest natural gas producer also plans to boost its unconventional energy output to five million tons of oil and gas equivalent, equal to five billion cubic meters of gas.

We maintain our long-term ‘Outperform' recommendation for CNOOC ADRs owing to its solid balance sheet, premium assets portfolio, excellent execution strategy, unique position as a pure oil player and potential transactions in the merger and acquisition space.