Cnooc Bucks Trend Among China Oil Companies

Photographer: Nelson Ching/Bloomberg

Signage for Cnooc Ltd. is displayed on the company's headquarters in Beijing. Close

Signage for Cnooc Ltd. is displayed on the company's headquarters in Beijing.

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Photographer: Nelson Ching/Bloomberg

Signage for Cnooc Ltd. is displayed on the company's headquarters in Beijing.

Cnooc Ltd. (883), China’s biggest offshore oil and natural gas explorer, will increase capital expenditure 31 percent in 2014 to boost growth, bucking a trend among the country’s top energy producers.

The company, which is developing about 20 new projects, will spend as much as 120 billion yuan ($19.3 billion) this year, compared with 2012, Chief Executive Officer Li Fanrong said at a press conference to announce full-year earnings in Hong Kong yesterday. The company plans to increase 2014 production, including at Canadian-unit Nexen, to 422 million to 435 million barrels of oil equivalent.

Sinopec and PetroChina Co. (857), the country’s top two oil producers, both cut spending targets last week and said they’ll invite private investment and focus on returns. In contrast, Cnooc is falling short of an average annual production growth target of 6 percent to 10 percent from 2011 to 2015. In January, the company forecast a lower-than-expected 5.6 percent output increase for 2014.

“Cnooc talks about 2014 as being a year of quality and efficiency but we have yet to see that reflected in the numbers,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein. “PetroChina and Sinopec are embarking on a path of quality over quantity.” Sinopec is officially known as China Petroleum & Chemical Corp. (386)

Cnooc may be able to meet its growth target if production grows at about 21 percent in 2015, Wu Fei, an energy analyst at Bocom International, said in an e-mailed research note yesterday.

The stock has dropped 15 percent this year, compared with a 5.3 percent decline in the benchmark Hang Seng Index. The shares rose 1.2 percent to HK$12.32 in Hong Kong yesterday, before the earnings announcement.

2013 Earnings

Cnooc reported a decline in 2013 profit as higher costs and lower crude prices crimped earnings. Net income fell 11 percent to 56.5 billion yuan last year from 63.7 billion yuan in 2012, the company said in a statement to the Hong Kong stock exchange. That compared with the 64 billion-yuan mean of 18 analyst estimates compiled by Bloomberg. Sales increased 16 percent to 285.9 billion yuan.

“The rapid increase in costs in recent years has drawn attention from all managerial levels,” Chairman Wang Yilin said in the statement. This year Cnooc “will further strive to control costs and enhance efficiency.”

CEO Li singled out unconventional oil and gas projects in Canada and the U.S. as areas where the company could cut costs.

Cnooc’s 2013 production, including Nexen, increased to about 411.7 million barrels, according to the statement. The company’s average realized crude price was $104.60, while Brent, the benchmark for more than half of the crude trade worldwide, was at $108.70 per barrel last year, compared with $111.70 in 2012.

“Ultimately, investors care about earnings and returns, whereas Cnooc management seems focused only on production growth,” said Bernstein’s Beveridge, adding the company will miss its growth target through 2015.

To contact the reporters on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net; Benjamin Haas in Hong Kong at bhaas7@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Abhay Singh, Indranil Ghosh

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