Cnooc First-Half Profit Drops After Output Losses at Penglai

Cnooc First-Half Profit Drops 19% After Output Losses at Penglai
The state-owned company, which expects to increase daily output by about 20 percent through its $15.1 billion takeover of Nexen Inc., is still awaiting government approval to resume operations at Penglai 19-3. Photographer: Nelson Ching/Bloomberg

Cnooc Ltd., China’s biggest offshore oil and gas explorer, posted a 19 percent decline in first-half profit that was worse than analysts estimated after a spill closed its largest local field. The shares slumped.

Net income dropped to 31.87 billion yuan ($5 billion), or 0.71 yuan a share, from 39.34 billion yuan, or 0.88 yuan, a year earlier, Cnooc said in a statement today. That compared with the 35.07 billion yuan median estimate of seven analysts in a Bloomberg survey.

Cnooc shares fell as much as 5.5 percent, the most since October 2011, after the company cut its dividend citing the need to conserve capital for the $15.1 billion takeover of Canada’s Nexen Inc. The state-owned company aims to bolster output through the acquisition, which has yet to gain approval from regulators in North America, after being forced to close its Penglai 19-3 field.

“Poor production growth and softer crude prices certainly won’t help lift Cnooc’s profit much,” said Simon Powell, the Hong Kong-based head of Asian oil and gas research at CLSA Ltd. “Cnooc may still struggle to maintain production growth for the second half, depending on when the Penglai production may resume, but its 2013 production will improve considerably if the Nexen deal goes through.”

The Beijing-based company plunged to HK$14.70 and traded at HK$14.92 as of 2:33 p.m. in Hong Kong. The benchmark Hang Seng index dropped 0.4 percent. Cnooc decided to reduce midyear dividend by 40 percent to 15 Hong Kong cents a share from a year earlier, citing capital requirements of the Nexen transaction and support for the company’s long-term growth.

Oil Prices

“Our net production decreased 4.6 percent year over year mainly due to the Penglai 19-3 oilfield,” Chief Executive Officer Li Fanrong said in the statement. The company will focus on cost control, starting new projects and carrying out the follow-up work on the Nexen transaction in the second half, he said.

Revenue was 118.3 billion yuan in the first six months compared with 124.6 billion yuan a year earlier, while output dropped to the equivalent of 160.9 million barrels of oil equivalent, according to the statement.

Oil production in the Penglai oilfields in Bohai Bay dropped 4 million barrels to 72 million barrels from a year earlier due to the shutdown of Penglai 19-3, according to a presentation posted on the company’s website today. Overseas output increased by 3 million barrels in the first half.

The Penglai 19-3 field produced 62,000 barrels of oil a day before being ordered closed in the second half of last year after the oil spill. The loss is equivalent to about 7 percent of Cnooc’s targeted daily oil and gas production, according to calculations by Bloomberg.

Nexen Assets

The price of Brent crude, the benchmark for more than half of the world’s crude oil, declined 13 percent from the beginning of the year to the end of June as Europe’s debt crisis and a slowdown in China’s economy limited demand.

Cnooc’s agreement last month to buy Canada’s Nexen would be the biggest overseas takeover by a Chinese company. The deal needs approval from regulators in Canada, and the U.S., where the Committee on Foreign Investment in the United States examines whether foreign purchases of U.S. assets raise security risks.

Nexen’s oil and gas assets include production platforms in the North Sea, the Gulf of Mexico and in Nigeria, as well as oil-sands reserves at Long Lake, Alberta, where it already produces crude in a joint venture with Cnooc.

Those assets produced 207,000 barrels a day in the second quarter, which would boost the Chinese company’s output by about 20 percent. About 28 percent of Nexen’s current production is in Canada.

Cnooc expects to achieve its production target of 330 to 340 million barrels of oil equivalent for the year, CEO Li said in the statement.

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