China's CNOOC Profits Disappoint But 2008 May Shine


Top Chinese offshore oil and gas producer CNOOC posted a disappointing 14 percent rise in second-half earnings despite climbing oil prices, after paying out nearly $1 billion in oil taxes in 2007.

Analysts foresee strong earnings for CNOOC this year with oil prices topping $110 a barrel this month, citing the company's ambition of producing 15 percent more oil and gas.

CNOOC, which has engineered acquisitions from Australia and Indonesia to Nigeria, is scouring the globe for more while pursuing deepwater exploration to supply an import-dependent China, the world's top oil consumer after the United States.

But rising costs could take some of the shine off earnings.

Chairman Fu Chengyu told reporters on Thursday costs were rising faster than expected this year, on the heels of a 12 percent jump in total costs in 2007, which include everything from the cost of production to payroll.

"Oil prices are rising, but our cost, including raw materials and government tax, is also rising. This is not something we can control," Fu said. "Our target is just to perform better than our peers under the same environment."

The smallest of a Chinese energy triumvirate that includes top Asian oil producer PetroChina and top Asian oil refiner Sinopec, CNOOC posted net profit of 16.71 billion yuan ($2.38 billion) in the second half versus 14.65 billion yuan a year earlier.

That lagged a consensus forecast of 17.25 billion yuan from 21 analysts surveyed by Reuters Estimates.

For the full year, CNOOC managed to expand net earnings just 1.1 percent -- its worst annual performance since 2001. The firm paid 6.84 billion yuan in windfall taxes, or levies that increase as oil prices rise, in 2007.

It should see net profit jump 40 percent to 43.7 billion yuan in 2008, according to 22 analysts polled by Reuters Estimates.

Splurging On Production

CNOOC said in January it would raise capital spending by almost half to $5.24 billion in 2008 to raise oil and gas production to between 195 million and 199 million barrels of oil equivalent this year.

Total oil and gas output rose 2.6 percent to 171 million barrels of oil equivalent (boe) in 2007. Its average realised oil price came to $66.26 per barrel, up 12.5 percent from 2006, while its reserve replacement ratio was 142 percent.

On the capital-raising front, Fu said a Shanghai or Shenzhen listing was still on the cards despite a lack of guidelines on the listing of yuan-denominated A shares by firms registered outside mainland China, such as CNOOC, which is now prohibited.

Shares in CNOOC jumped 50 percent in July-December, outpacing PetroChina's 21 percent rise and Sinopec's 36 percent gain. The index of Hong Kong-listed Chinese firms rose 34 percent.

CNOOC trades at 13.8 times forecast earnings, pricier than Exxon Mobil's 10.5 and BP's 9.

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