Cnooc Profit Growth to Surpass Exxon, Shell on Output

By Wang Ying and Winnie Zhu
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Aug. 21 (Bloomberg) -- Cnooc Ltd.'s first-half profit growth may be double that of Exxon Mobil Corp. and Royal Dutch Shell Plc after China's third-largest oil company increased its crude reserves and output amid record prices.

Net income probably climbed 52 percent to 22.1 billion yuan ($3.2 billion), according to the median estimate of five analysts surveyed by Bloomberg News. Cnooc avoided the likely slump in profits at PetroChina Co. and China Petroleum & Chemical Corp. caused by government caps on fuel prices because it doesn't run refineries, Gordon Kwan, an analyst at CLSA Ltd., said.

Cnooc relied on discoveries and production at home to benefit from a 46 percent increase in crude oil prices in the first six months, while its overseas competitors struggled to boost output as countries from Kazakhstan to Venezuela cut access to oil. PetroChina and Sinopec, as China Petroleum is known, have been prevented from passing on crude oil costs to consumers.

Cnooc has benefited ``thanks to surging crude oil prices and the lack of exposure to China's depressed downstream fuel market,'' said Kwan, CLSA's Hong Kong-based head of China energy research. ``The second half should improve further on the back of still high oil prices and the start-ups of numerous oil and gas fields in Bohai Bay.''

The Beijing-based exploration company plans to increase crude oil and natural gas output by as much as 18 percent this year as economic growth spurs energy demand, Cnooc said on Jan. 29. Cnooc announced the start-up of two oil fields and two discoveries in the first half.

Exxon, PetroChina

Exxon's net income climbed 16 percent in the first six months while Shell's profit climbed 29 percent, according to data compiled by Bloomberg.

PetroChina, Asia's biggest oil company, may post a 34 percent drop in profit to 54 billion yuan and earnings at Sinopec probably fell 81 percent to 7 billion yuan, according to the median estimates of seven analysts.

Sinopec is due to release earnings between Aug. 22 and Aug. 25 while Cnooc and PetroChina are scheduled to report on Aug. 27.

Cnooc's earnings have outperformed those of its Chinese rivals because the offshore oil producer derives about 90 percent of its revenue from exploration compared with almost 11 percent at PetroChina and less than 2 percent at Sinopec.

China's refineries are still losing money even though the government raised gasoline and diesel prices by at least 17 percent in June, China National Petroleum Corp., the parent company of PetroChina, said on June 28.

Fuel Prices

Sinopec supplies about two-thirds of China's refined oil products while PetroChina provides most of the rest. First-half profit at Sinopec may have fallen by more than 50 percent because of rising crude costs, China's biggest refiner said on July 17.

``We believe there is room for the government to raise domestic refined product prices further,'' Goldman Sachs Group Inc. analysts including Kelvin Koh and Chris Shiu said in an Aug. 13 research note.

Cnooc spokesman Xiao Zongwei, Sinopec's Huang Wensheng and PetroChina's Mao Zefeng, declined to comment on the earnings estimates.

PetroChina is still in talks with the government on possible adjustments to the windfall tax levied on crude-oil sales, Chairman Jiang Jiemin said July 31.

Reconsidering Levy

Chinese oil producers pay a tax on revenue from crude sold for more than $40 a barrel under a levy introduced in March 2006, based on a global crude price of about $60. The government said the levy would be reconsidered when oil is above $80 a barrel, Jiang said in May.

``Removal of such taxes could boost our full-year 2009 profit forecast for Cnooc by 52 percent, restoring enough cash flow to reinvest in oil and gas exploration,'' CLSA's Kwan said in an Aug. 14 report.

Cnooc's shares have climbed 30 percent in the past year compared with a 0.9 percent increase in Sinopec's Hong Kong stock. PetroChina has fallen 9.7 percent while the benchmark Hang Seng Index has declined 6.2 percent in the same period.

Crude oil futures in New York reached a record $147.27 a barrel on July 11. Prices have dropped 21 percent since then and are still 68 higher than a year ago.

To contact the reporters on this story: Wang Ying in Beijing at wang30@bloomberg.net; Winnie Zhu in Shanghai at wzhu4@bloomberg.net.