Stories fuel sharp rise in oil prices, says CNOOC boss

PUBLISHED : Thursday, 24 March, 2011, 12:00am
UPDATED : Thursday, 24 March, 2011, 12:00am

The sharp rise in oil prices was fanned by 'stories' created by investment funds rather than real demand and supply imbalances, according to the head of dominant offshore oil and gas producer CNOOC.

At its annual results press conference yesterday, chairman Fu Chengyu said the political upheavals in the Middle East only played a small part in pushing up oil prices.

'The 'jasmine revolution' has not had much impact on oil demand and supply, and the rising oil price is mainly a result of people's expectations,' Fu said. 'Given big expectations of the US dollar's depreciation, all sorts of investment funds have been entering the futures market since the end of last year. They used the Middle East situation to create the perfect investment story.'

Asked on CNOOC's internal oil price assumption, Fu said its forecast oil price in last year's budget was US$6 higher than the actual average. 'No oil firm can predict oil price accurately,' he said.

CNOOC reported an 84.5 per cent rise in net profit to 54.41 billion yuan (HK$64.6 billion) last year. The profit, helped by 994.8 million yuan of foreign exchange gains, is 3.4 per cent ahead of the 52.61 billion yuan average forecast of 28 analysts polled by Thomson Reuters.

Sales jumped 74 per cent to 183.05 billion yuan, thanks to a 44.4 per cent rise in oil and gas output to 328.8 million barrels of oil equivalent (boe), buoyed by nine new projects that began production and major acquisitions in South America.

Oil output grew 41.6 per cent while natural gas output surged 59.1 per cent. Average oil selling price leaped 28 per cent to US$77.59 a barrel last year, as the price of gas edged up 6.5 per cent to US$4.27 per thousand cubic feet.

Operating costs fell 9.5 per cent to US$7.27 per barrel because of savings on fixed costs per unit of output due to higher production.

CNOOC plans to raise output by 8 to 11 per cent this year to 355 million to 365 million boe.

Last year's spending on capacity expansion and infrastructure construction amounted to US$5.07 billion, much lower than US$7.93 billion budgeted last year.

Chief executive Yang Hua attributed the shortfall to lower costs to efficiency gains and delayed projects to icy weather in northern China and typhoons in the South China Sea.

Yang would not provide a break down of the impact of the two factors on spending. This year, CNOOC plans US$8.77 billion in spending.

US brokerage Sanford Bernstein senior analyst Neil Beveridge said in a research note that CNOOC's reserves replacement ratio of 202 per cent last year was disappointing despite it being the highest since 2003. The ratio measures a firm's ability to find more reserves to cover output.

Beveridge believes all the replacement came from overseas acquisitions, meaning CNOOC was barely finding enough new reserves to cover rising domestic output.

The board declared a final dividend of 5 HK cents per share, bringing the dividend yield to 2.6 per cent for shareholders.