CNOOC warns of risk to earnings

PUBLISHED : Friday, 28 March, 2008, 12:00am
UPDATED : Friday, 28 March, 2008, 12:00am

CNOOC, the nation's dominant offshore energy producer, warned of rising pressure on its bottom line as increased production costs and taxes ate into earnings from higher oil prices last year.

The company said yesterday net earnings last year rose 1.07 per cent to 31.26 billion yuan (HK$34.65 billion) from 30.93 billion yuan in 2006. That was in line with the 31.16 billion yuan average estimate of 25 analysts polled by Thomson Financial.

Turnover grew 2 per cent to 90.72 billion yuan.

Operating margin fell to 45.4 per cent from 48.4 per cent as the cost to lift a barrel of oil rose 12.2 per cent to US$16.37.

CNOOC is still better placed than many of its global peers, which face product cost increases of between 10 and 40 per cent because of rising labour and raw material prices.

Gordon Kwan, CLSA's head of China energy research, said CNOOC was helped by its relatively young oil and gas fields and its sharing of development costs with overseas partners in some projects.

Still, rising costs have offset the benefit of a 2.6 per cent jump in oil and gas output to 171 million barrels of oil equivalent, a 12.5 per cent increase in average oil selling prices to US$66.26 a barrel, and an 8.7 per cent gain in gas selling prices to US$3.30 per 1,000 cubic feet.

'We can't give a forecast on how much of a cost increase we will see this year,' said chairman Fu Chengyu. 'We think the situation could be worse than expected given surging inflation. Steel, cement, service and diesel costs have all gone up.'

Depreciation of the US dollar against the yuan had cut the value of CNOOC's dollar-denominated oil and gas revenue while the levy on oil revenue, introduced in April 2006, jumped 71.7 per cent to 6.83 billion yuan last year.

The levy is a progressive tax where producers pay more when oil prices rise.

Some analysts said this year's outlook was more positive than previously, given the company's guidance for a 14 to 16.4 per cent rise in output.

Mr Kwan yesterday raised his estimate for CNOOC's profit this year by 4 per cent to 43.26 billion yuan after the brokerage lifted its average Brent benchmark crude oil price forecast to US$95 from US$80.

'This upgrade is prudent because crude futures point towards more upside in this year's second half as the world's ageing oilfields decline further,' he wrote in a research note.

Prudent upgrade

CLSA has raised its profit target for CNOOC this year 4 per cent to, in yuan: 43.3b yuan