Cnooc Ltd. (883), China’s biggest offshore oil explorer, posted record half-year profit that beat analysts’ estimates after crude prices rose and it increased output to meet demand in the fastest-growing major economy. Net income grew 51 percent to 39.34 billion yuan ($6.2 billion), or 0.88 yuan a share, in the first six months from 25.99 billion yuan, or 0.58 yuan, a year earlier, Cnooc said in a statement today. That surpassed the 35.95 billion-yuan median estimate of eight analysts and the previous record of 28.4 billion yuan in the period ended Dec. 31. Production rose 13 percent helped by acquisitions in North America and Africa, while crude climbed to the highest in more than two years. Cnooc cut its full-year output target after oil spills disrupted operations at China’s biggest offshore field and unit Bridas Corp. fell behind schedule for completing the acquisition of a $7.1 billion stake in Pan American Energy LLC. “It looks like production is slowing down,” said Laban Yu, an analyst at Jefferies Group Inc in Hong Kong. “It’s a record profit because of oil prices, and that won’t repeat itself in the next half as crude has already pulled back.” Crude in New York averaged $98.50 a barrel in the first half, compared with $78.46 a year earlier. The price has fallen 11 percent since the beginning of the second half, averaging $92.02, on speculation a slowing U.S. economy and Europe’s debt crisis will lead to weaker oil demand. Revenue, Output Cnooc has climbed 8.7 percent in Hong Kong trading in the past 12 months, compared with the 5.8 percent decline in the benchmark Hang Seng Index. (HSI) The Beijing-based company fell 2.1 percent to close at HK$14.22, before the earnings announcement. Revenue increased 51 percent to 124.6 billion yuan in the first six months, while output rose to the equivalent of 168.7 million barrels of oil, according to the statement. The Jinzhou 25-1 field in Bohai Sea came on-stream in the first half, Cnooc said, while oil output off the Chinese coast fell 2.8 percent in the first half from the preceding six months. Fewer new projects will start production this year, the company said. Cnooc cut its full-year output target today to 331 million to 341 million barrels, from a goal of as much as 365 million barrels it had set in January. Oil and gas production accounts for 99 percent of its income. Oil Spills Cnooc and partner ConocoPhillips halted two platforms at Penglai 19-3 field in Bohai Bay on July 13, following two oil spills in June. Operator Conoco said on Aug. 17 it resumed partial production. Startup of fields off the eastern coast would help offset the Penglai crude output loss of 22,000 barrels a day, about 3 percent of Cnooc’s oil and gas production last year. Weizhou 11- 2 and Lufeng 13-2 fields in the South China Sea are scheduled to begin operations in the second half, Cnooc said. Bridas, an oil company by Cnooc and Argentina’s billionaire Bulgheroni family, agreed in November to acquire BP Plc’s 60 percent it doesn’t already own of Pan American Energy. The deal, due to be completed by June 30, is subject to governmental and regulatory approval, Cnooc said in its earnings statement. Cnooc has bid for at least $12 billion of assets overseas since the beginning of last year to boost output and reserves. The explorer plans to use its “relatively ample” cash to buy more assets globally, Chief Financial Officer Zhong Hua said on July 20. Overseas Acquisitions The Chinese explorer last month agreed to buy bankrupt oil- sands producer Opti Canada Inc. (OPC) for $2.1 billion in cash and debt. Deals in the first half include the $570 million purchase of a one-third stake in Chesapeake Energy Corp.’s Niobrara shale-gas project and the $1.5 billion acquisition of a one- third share in three Uganda exploration blocks. “Closure of some of these deals will be positive,” said Neil Beveridge, a senior analyst at Sanford C. Bernstein & Co. “More drilling in the South China Sea will also help the company.” Cnooc may report a 29-percent increase in full-year profit to 70.1 billion yuan, according to the median estimate of 21 analysts surveyed by Bloomberg before the earnings announcement. The company doesn’t release quarterly earnings. The global economy is becoming “increasingly volatile and international oil prices are becoming increasingly volatile,” Chairman Wang Yilin, who replaced Fu Chengyu on April 15, said in today’s statement. Stable Production In the second half, Cnooc will focus on maintaining “stable production of oil and gas fields and implement measures ensuring that the revised annual production targets can be achieved,” Chief Executive Officer Yang Hua said in the statement. The company will also work on “the integration and management on overseas acquisition projects and ensure that the projects progress smoothly and staff are positioned seamlessly,” he said. Overseas production accounted for 20 percent of total output last year, rising from 17 percent in 2009, Cnooc said on Jan. 27. By 2015, fields outside China may account for more than 30 percent of output, the company said at the time. The unit of state-controlled China National Offshore Oil Corp. also has assets in Australia, Indonesia, Trinidad and Tobago, and Nigeria. --Chua Baizhen and Guo Aibing. With assistance from Winnie Zhu. Editors: Ryan Woo, Amit Prakash. To contact the reporters on this story: Baizhen Chua in Hong Kong at bchua14@bloomberg.net; Guo Aibing in Hong Kong at aguo10@bloomberg.net To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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