Profit falls 19% in first half as China’s energy giant moves to conserve cash.
HONG KONG—Chinese energy giant CNOOC Ltd. is slashing its dividend amid falling profits and the need to conserve cash for its proposed US$15.1-billion purchase of Canadian oil and gas producer Nexen.
China National Offshore Oil Co., that country’s biggest offshore oil and gas producer, said that first-half profit fell 19% as costs rose and a big oil spill in China’s Bohai Bay cut production.
The company cut its dividend by 40% to 15 Hong Kong cents a share to save up cash needed for the Nexen deal, part of CNOOC’s strategy of expanding aggressively overseas. That means it would pay out US$600 million less to shareholders than it did last year.
“Through the transaction, we will be able to expand our overseas business and resource base, enhance our presence in Canada, Gulf of Mexico and Nigeria, and enter the resourceful UK North Sea,” chief executive Li Fanrong said in a statement, adding that the deal would create “long-term value” for shareholders.
The Beijing-based company, one of China’s three major state-owned oil and gas producers, made news in July with its friendly, US$27.50 per share offer for Nexen, the latest sign of China’s hunger for overseas energy assets. The company trades on both the New York and Toronto stock exchanges.
If the deal goes through, it would be China’s biggest overseas energy acquisition. However, the offer for Calgary-based Nexen has run into some political obstacles in both the US and Canada.
Senator Charles Schumer, a New York Democrat, wants US authorities to hold up the deal as a means to press China on its trade policy as the US securities regulator also looks into allegations of insider trading surrounding the deal.
Although Nexen is based in Canada, it has offshore holdings in the US Gulf of Mexico, which CNOOC has said means the deal requires approval from US regulators.
The federal Competition Bureau and Investment Canada as being of net benefit to Canada must also approve it.
For its part, Nexen has faced serious challenges over the past few years, including the troubled launch of its Long Lake oil sands project in northern Alberta in late 2008. The project has yet to come close to its design capacity of 72,000 barrels of bitumen per day due to a number of operational glitches, though performance has been improving.
CNOOC already had a 35% stake in Long Lake after it took over Nexen’s erstwhile partner Opti Canada Ltd. for $2.1 billion last year. The two companies also work together in the Gulf of Mexico.
The Chinese company reiterated in its financial report that the deal would make CNOOC “a truly global oil and gas exploration and production company with a balanced resources portfolio and important presences in the world’s major oil and gas production areas.
“At the same time, we will be able to acquire the world class management team and employees from Nexen and establish a leading international development platform.”
Meanwhile, CNOOC said that net oil and gas production fell 4.6% to 160.9 million barrels in the first six months, “mainly due” to the production shutdown at an oilfield in the bay off China’s northwest.
The shutdown followed the discovery last year of oil leaks at the Penglai 19-3 oilfield, the largest in China, which the company operates jointly with U.S. partner ConocoPhillips Co.
The public outcry over the spill’s environmental damage was a public relations setback for the company. It was ordered by the government to halt all production so a full cleanup could be carried out.
Rising industry costs and changes in the company’s assets structure also helped drag down profit. That pushed up CNOOC’s cost per barrel in the first half to $34.60, 13.1 per cent higher than in 2011, the company said.
CNOOC posted first-half profit of 31.8 billion yuan ($5 billion), or 0.71 yuan (12 cents US) per share, down from 39.3 billion yuan, or 0.88 yuan per share, from the year before.
The company is confident it can meet a production target of 330 million to 340 million barrels for the year, although Li was not optimistic about the global outlook for the rest of 2012.
“For the second half of the year, the world economy will likely to continue to bear the downward pressure and international oil prices are expected to become increasingly volatile,” he said in a statement.
With files from The Canadian Press