CNOOC plans to diversify and enhance value

CNOOC, the country's biggest offshore oil and gas producer, plans to diversify into midstream oil refining and downstream chemical production to become an integrated oil company and increase its stock market value, chairman Fu Chengyu said yesterday.

It is the first time CNOOC has spelt out its strategy to expand into downstream businesses, although Mr Fu stressed the diversification would be carried out by state-owned parent company China National Offshore Oil Corp first.

'The market always gives integrated oil companies a higher valuation than a pure exploration and production oil company,' said Mr Fu after CNOOC's annual shareholders' meeting. 'For CNOOC to achieve a higher valuation, the next step is to develop into an integrated oil company gradually.

'Downstream businesses involve huge investment. Our parent will inject these businesses into CNOOC when our shareholders think it is good for the company,' Mr Fu said, without giving a timetable.

The Beijing-based parent firm is involved in a wide range of businesses, from oil exploration, chemical production and refining, natural gas and power generation to financial and logistic services.

It has started building some liquefied natural gas import projects in coastal provinces and a big oil refining plant in Huizhou, Guangdong province.

CNOOC is the only pure oil exploration and production company of the three listed mainland oil firms, the others being PetroChina and China Petroleum & Chemical Corp (Sinopec). The historical price-earnings ratio for PetroChina is 13.5 times and that for Sinopec is 20.9 times, while CNOOC's is 8.6 times, based on the stocks' closing prices yesterday.

PetroChina shares jumped 5.83 per cent to HK$8.71 yesterday, while CNOOC gained 4.93 per cent to HK$9.79 and Sinopec rose 4.56 per cent to HK$6.42 as oil prices surged, prompting speculation that Beijing would raise oil product prices last night, a move later denied by government officials.

Crude oil rose above US$63 a barrel to a six-month high yesterday. The Organisation of Petroleum Exporting Countries will meet in Vienna today to decide on production quotas.

Mr Fu said the room for oil prices to rise further this year was very limited as global demand remained weak. 'I can't see any driving force which will push oil prices up. Crude trading between US$50 and US$60 this year is not bad,' he said.

On a separate issue, Mr Fu said CNOOC would strengthen its co-operation with Taiwanese oil company CPC Corp in oil exploration ventures at home and abroad. He did not elaborate.

The companies have joint exploration projects in the Tainan Basin of the Taiwan Strait and the Chaozhou Shantou Basin off the Guangdong coast.

Mr Fu also said CNOOC intended to acquire overseas oil assets or co-operate with foreign partners on oil projects rather than buy overseas companies directly.

'The potential risks in buying an overseas company are very big,' he said, referring to political, economic and tax issues.

Going downstream

CNOOC aims to go beyond exploration to be an integrated oil firm

Amid rising crude prices, the firm's stock yesterday gained: 4.9%

Oil climbed to a six-month high yesterday to trade above, in US$: $63