Cnooc First-Half Profit Doubles, Beating Estimates, as Output Surges 41%

Cnooc Ltd., China’s biggest offshore oil producer, said first-half profit more than doubled, beating estimates, after a rebound in the nation’s economic growth spurred demand and helped drive a rally in crude prices.

Net income climbed to 25.99 billion yuan ($3.8 billion), or 0.58 yuan a share, from 12.4 billion yuan, or 0.28 yuan, a year earlier, Cnooc said in a statement to the Hong Kong stock exchange today. That’s more than the 23 billion yuan median estimate of six analysts surveyed by Bloomberg News.

Earnings growth exceeded gains at Exxon Mobil Corp. and Royal Dutch Shell Plc as Cnooc ramped up output 41 percent to a record after China led the world out of recession and crude prices jumped 50 percent in the first half. The Beijing-based company bought a $3.1 billion stake in Argentina’s Bridas Corp. in May and said today acquisitions will drive future growth.

“Cnooc is likely to report some of the best production numbers of any oil company in the world this year, and with crude prices at over $70 a barrel, it means they will make strong profits,” said Neil Beveridge, an analyst at Sanford C. Bernstein & Co. in Hong Kong.

Profit at Exxon, the world’s largest company by market value, rose 63 percent in the first half, while Shell posted a 35 percent increase, according to Bloomberg data. Cnooc Chairman Fu Chengyu aims to boost production by 28 percent this year while Exxon is forecasting output growth of as much as 4 percent and Shell expects volumes to be on par with 2009.

Costs Decline

Cnooc’s operating costs fell about 15 percent from a year earlier to $6.80 a barrel in the first six months, while the average realized oil price rose 55 percent to $76.59 a barrel, the company said today. Crude oil futures New York averaged $78 a barrel in the period.

“Cnooc’s second-half growth will continue to be supported by potentially higher output and its cost-control strategy,” Qiu Xiaofeng, an oil analyst with China Merchants Securities Ltd., said by telephone. “Profit is unlikely to double again since gains in oil prices won’t be as dramatic.”

Cnooc has climbed 29 percent in Hong Kong trading in the past 12 months compared with Shell’s 11 percent gain in London and Exxon’s 12 percent decline in New York. The stock rose 0.9 percent to close at HK$13 before the earnings announcement.

For the full year, Cnooc may report a 48 percent increase in profit to 43.7 billion yuan, according to a median estimate of 14 analysts surveyed by Bloomberg. Oil and gas production accounts for 99 percent of the company’s income.

Production Target

Cnooc aims to boost output to as much as 290 million barrels of oil equivalent this year. The target is achievable as much of China’s offshore reserves remain untapped, said Wang Aochao, head of China energy research at UOB-Kay Hian in Shanghai.

Oil and gas production rose to a record 149 million barrels of oil equivalent in the first half, driven by new field startups in Bohai Bay and the South China Sea, the company said in its earnings statement. Overseas oil output more than doubled to 17 million barrels from 7.6 million barrels a year earlier.

Of the six new projects announced this year, four have started production, the company said.

Cnooc said the company and its partners made nine new discoveries and seven successful appraisals in the first half. In addition to acquiring 50 percent of Bridas, the company also increased its stake in the Panyu field off China’s east coast.

‘Solid Base’

The Bridas stake purchase, completed in May, will expand Cnooc’s production by an average of 46,000 barrels a day, or about 16.8 million barrels a year. The acquisition marks Cnooc’s entry in Latin America and tops the $2.7 billion it paid in 2006 for a share in a Nigerian oilfield.

“New projects were brought on stream as planned and record production growth was achieved, laying a solid base for realizing the full-year production target,” President Yang Hua was cited as saying in the statement. “We have successfully completed several mergers and acquisitions projects which will further fuel the development of the company.”

Yang will become Cnooc’s chief executive officer from Sept. 16, reporting to Chairman Fu, the company said in a separate statement. Li Fanrong, currently a non-executive director, will replace Yang as president.

--John Duce in Hong Kong and Wang Ying in Beijing. Editors: Ryan Woo, Amit Prakash.

To contact Bloomberg staff on this story: John Duce in Hong Kong at +852-2977-2237 or Jduce1@bloomberg.net; Ying Wang in Beijing at +86-10-6649-7562 or ywang30@bloomberg.net

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