Cnooc profit rises as oil output compensates for costs

Cnooc Ltd. (883), China’s biggest offshore oil and gas explorer, posted a better-than-estimated 7.9 percent increase in first-half profit as rising output helped counter higher costs, including at unit Nexen Inc. The shares advanced the most in 19 months.

Net income rose to 34.38 billion yuan ($5.6 billion), or 0.77 yuan a share, from 31.87 billion yuan, or 0.71 yuan, a year earlier, Cnooc said in a statement yesterday. That compared with the 30.25 billion yuan median estimate of eight analysts, according to data compiled by Bloomberg.

Nexen, a Canadian oil company Cnooc bought earlier this year for $15.1 billion in China’s biggest overseas acquisition, contributed about 0.5 percent to profit, even as its output accounted for 13 percent of the Chinese company’s total. Cnooc’s net production in the period rose 23 percent to 198.10 million barrels of oil equivalent, according to the statement.

“Operation cost at Nexen was a bit high but the acquisition provided exactly what the company had expected,” Li Fanrong, Cnooc’s chief executive officer, said at a press conference in Hong Kong yesterday. “In the longer term, the rich unconventional oil and gas reserves at Nexen will provide Cnooc the kind of resources to achieve consistent and solid growth.”

Cnooc’s production cost jumped 22 percent to $42.36 per barrel, including Nexen, it said in the statement.

Cnooc climbed 4.9 percent, the most since Jan. 17, 2012, to HK$15.54 at the close in Hong Kong. The stock was the best performer on the benchmark Hang Seng Index today.

New Projects

Nexen contributed 24.8 million barrels of oil equivalent to total output. Cnooc may not see a significant increase in oil and gas production in the second half compared with the first, as most of 10 new offshore projects in China won’t start operating before the end of the year, CEO Li said.

The increase in output helped compensate for the decline in the price of crude. Brent, the benchmark crude for more than half of the world’s oil, dropped to an average of $107.90 per barrel in the first six months from $113.60 a barrel a year ago.

Nexen contributed 197 million yuan to Cnooc’s profit in the first half, and its operating cost raised Cnooc’s per barrel production cost by 22 percent to $42.36. Excluding Nexen numbers, Cnooc’s per barrel cost increased 9.3 percent to $37.81. Cnooc didn’t provide a breakdown of Nexen’s numbers.

“We remain willing to give them the benefit of doubt, and believe Cnooc management can bring costs down,” Neil Beveridge, a Hong Kong-based oil and gas analyst at Sanford C. Bernstein & Co., wrote in an e-mailed research note yesterday.

Cnooc’s revenue was 139 billion yuan in the first six months, compared with 118 billion yuan a year earlier, according to the statement. Cnooc’s realized crude price dropped by 10 percent to $104.20 a barrel, compared with a 5 percent decline for Brent.