HONG KONG: CNOOC Ltd, the country's third-biggest oil company, posted a higher profit than analysts expected and said it will step up exploration and acquisitions to increase reserves and meet demand on the mainland.

CNOOC's first-half profit beat the median estimate of 11.5 billion yuan in a Bloomberg News survey of seven analysts. Instead, net income fell 55 percent to 12.4 billion yuan ($1.8 billion) in the first half, CNOOC said in a statement in Hong Kong yesterday.

This gain comes against a backrop of advancing oil futures. In New York, they have climbed to above $71 a barrel from a low of $33.55 February 12 on speculation the global economy is recovering.

CNOOC has gained 43 percent in Hong Kong trading this year as an expanding economy boosted fuel consumption.

Wang Aochao, head of China energy research at UOB-Kay Hian Ltd in Shanghai, said that the mainland "is importing about half its oil and demand is increasing, so companies like CNOOC need to secure more reserves," adding that CNOOC is developing oil and gas fields off the country's coast, but also needs to secure supplies overseas.

The company plans to boost exploration, especially off the country's coast, Chairman Fu Chengyu said at a media briefing yesterday.

Fu said CNOOC has changed its overseas acquisition strategy to focus on taking stakes in ventures, rather than buying out companies to fight rising protectionism after failing to buy Unocal Corp in 2005.

The mainland, which is the world's second-largest energy user, processed a record volume of crude oil in July as industrial production climbed almost 11 percent.

"The economic recovery is positive for the company's performance," Fu said yesterday. "Nevertheless, it's our organic growth that will help us ride through the 'winter' quickly."

New oil and gas projects have commenced operations in the mainland, Indonesia and Nigeria, and net production may rise more than 15 percent this year, Fu said.

About 83 percent of CNOOC's reserves are off the country's coast. The company also has petroleum interests in Australia.

CNOOC will focus on "cooperation" to boost its overseas output, Fu told reporters at the media briefing. The company can't make "mass-scale acquisitions" because of rising protectionism amid the global economic slowdown, he said.

Opposition to Chinese investments helped block CNOOC's $18.5 billion bid for Unocal.

CNOOC and China Petroleum & Chemical Corp said last month they agreed to acquire a 20 percent stake in an offshore block in Angola for $1.3 billion from Marathon Oil Corp, the fourth-largest US oil company.

The transaction is subject to government approval and may face obstacles as Sonangol SA, Angola's state-owned oil company, "has the intention to exercise its preemptive rights" over the stake offered by Marathon, Fu said. "We need to wait for their final decision."

CNOOC fell 3 percent to HK$10.34 yesterday, compared with the 1 percent drop in the Hang Seng index, as Asian stocks declined after Beijing said it may curb overcapacity in steel. Morgan Stanley raised its CNOOC target to HK$11.70 from HK$10.80.

Bloomberg News

(HK Edition 08/28/2009 page4)