Cnooc Profit Falls 19% Amid Oil Spill

Cnooc Ltd. posted a 19% decline in its first-half net profit on Tuesday, as a production halt at the site of a massive oil spill in China last year lowered the energy company's output.
Source:wsj     Time:22 Aug 2012
Cnooc, China's largest listed offshore oil and natural-gas producer, also recommended a 40% cut in its dividend due to the cost of its proposed $15.1 billion acquisition of Canadian energy company Nexen Inc.

Despite the decline in output, Cnooc said it expects to meet its 2012 production target amid an aggressive strategy of acquiring overseas shale-gas and oil assets. Its confidence in meeting the output target is underpinned by 10 new oil- and gas-exploration discoveries in offshore China so far this year as well as the planned acquisition of Nexen, announced last month.

Cnooc's first-half net profit fell to 31.87 billion yuan ($5.01 billion) from 39.34 billion yuan a year earlier, as higher corporate taxes also took a toll. The latest result came in below the average 35.92-billion-yuan forecast of six analysts polled by Dow Jones Newswires.

Revenue fell 5% to 118.27 billion yuan, as Cnooc's net crude-oil and gas output declined 4.6% to 160.9 million barrels of oil equivalent.

The reduced production stemmed largely from the shutdown of the Penglai 19-3 oil field after an oil spill last year. China's State Oceanic Administration ordered a halt to production at the field last September, citing unsatisfactory progress in cleaning up the June 2011 spill. The field in Bohai Bay, on China's eastern coast, is 51%-owned by Cnooc. It is operated by ConocoPhillips China.

Cnooc's average selling price of its crude oil rose 8.1% to $116.91 a barrel, while the company's corporate taxes rose 48% to 13.34 yuan billion.

Chairman Wang Yilin said Cnooc has proposed a first-half dividend of 15 Hong Kong cents (two U.S. cents), down from 25 Hong Kong cents in the previous year, due to the capital requirements of the Nexen transaction.

"Upon the closing of the transaction, the company will become a truly global oil and gas exploration and production company with a balanced resources portfolio and important presences in the world's major oil and gas production areas," Mr. Wang said in a written statement.

A Nexen acquisition is expected to increase Cnooc's proved reserves by about 30% and its net production by about 20%. Nexen's assets include oil and gas projects in offshore Nigeria, the Gulf of Mexico, Colombia, Yemen and Poland, as well as a project to tap gas trapped in tight shale-rock formations in British Columbia.

China's big three energy producers—Cnooc, China National Petroleum Corp. and China Petroleum Corp. —have secured multibillion-dollar deals in recent years to buy into shale-gas and oil assets in North America, giving their energy-thirsty nation a foothold in a region known for innovative new drilling techniques. However, a slide in North American gas prices has resulted in write-downs by some major competitors in the sector.

The shale-gas industry is still in its infancy in China, but the Chinese government has made shale gas a cornerstone of its five-year energy plan, aiming to boost production from no commercial output today to 60 billion cubic meters a year by 2020.

In 2010, Cnooc agreed to pay Chesapeake Energy Corp. $1.08 billion for a one-third stake in 600,000 acres in the oil-rich Eagle Ford Shale formation in south Texas, and to spend an additional $1.08 billion on drilling there.
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