Cnooc Group to Spend $1 Billion to Expand Refinery

By Wang Ying

Sept. 19 (Bloomberg) -- China National Offshore Oil Corp., the nation's biggest offshore oil producer, plans to spend 7 billion yuan ($1 billion) over the next three years to more than double the capacity of a refinery purchased this month.

The Beijing-based company will expand the refinery in the eastern part of China to 160,000 barrels a day from 60,000 barrels a day, Shandong Haihua Group Co., a partner and a chemical producer, said in a statement on its Web site.

China National Offshore, the parent of Hong Kong-listed Cnooc Ltd., is building refineries and expanding small plants to diversify from oil production into processing. China's fuel demand may rise 6 percent a year, reaching 230 million metric tons by 2010, the research unit of China Petrochemical Corp., the nation's biggest refiner, said in December 2007.

``China National Offshore and Shandong Haihua will start expanding the plant soon, and will build an oil pipeline from Dongying to Weifang,'' Shandong Haihua said on its Web site.

China National Offshore acquired a 51 percent stake in the refinery from Weifang Municipal State-owned Assets Supervision and Administration Commission, unit Shandong Haihua Co. said on Sept. 8. The refinery will source crude oil from the wells of Cnooc in nearby Bohai Bay, Shandong Haihua said in the statement.

Refining Push

The parent of Cnooc said in March it is ``actively pushing forward'' to acquire refineries because of plans to increase its oil-processing capacity fivefold by 2020 to 60 million tons. The oil producer is building its first refinery in Huizhou in the southern province of Guangdong.

The company will start increasing the capacity of its 240,000 barrel-per-day Huizhou refinery to 440,000 barrels a day next year, Shandong Haihua said. The expansion is due to be completed by 2011, it said.

Cnooc shares climbed 15 percent to HK$9.35 in Hong Kong trading today, the biggest gain in almost eight months. The benchmark Hang Seng Index was up 9 percent. Shangdong Haihua shares rose 10 percent to 6.01 yuan in Shenzhen. The stock has fallen more than 66 percent in the past year.

To contact the reporter on this story: Wang Ying in Beijing at wang30@bloomberg.net.