Aug. 24 (Bloomberg) -- PetroChina Co., Asia's biggest oil company by market value, fell in Hong Kong trading amid concern that increased costs and spending may trim earnings.

PetroChina dropped as much as 2.5 percent to HK$10.76 and reached HK$10.98 at 11:00 a.m., headed for the first decline in five days.

The cost of extracting oil and gas rose 20 percent in the first half to $7.1 for each barrel of oil equivalent, the company said yesterday. PetroChina and rivals China Petroleum & Chemical Corp. and Cnooc Ltd. are increasing spending to meet surging energy demand in an economy that expanded by 11.9 percent in the second quarter, the fastest pace in 12 years.

``The company's management acknowledged cost challenges and holding costs steady in the second half of this year will be tough, given history,'' Prashant Gokhale, Edwin Pang and Horace Tse, Hong Kong-based analysts with Credit Suisse Group, said in a research report today.

Capital expenditure reached 51 billion yuan in the first half. Jiang Jiemin, appointed chairman in May, announced earlier this year plans to spend 40 billion yuan by 2012 to develop Jidong Nanpu, the nation's biggest oil discovery in almost half a century.

PetroChina plans to increase spending on equipment and production 24 percent to $24.5 billion this year, more than the $21 billion budget of Exxon Mobil Corp., the world's largest publicly traded oil company.

First-half net income rose 1.4 percent to a record 81.83 billion yuan ($10.79 billion), helped by a lower tax bill. Operating profit declined 5.3 percent because of an increase of 4.65 billion in government levies on oil sales, Chief Financial Officer Zhou Mingchun said yesterday.

``This could be a watershed for the company as it struggles to grow and keep costs in check,'' the Credit Suisse analysts said.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net.

Last Updated: August 23, 2007 23:03 EDT