CNOOC today begins its initial public offering in Hong Kong as part of a plan to net up to US$2.5 billion from a dual listing in the SAR and New York. The company hopes to raise up to HK$1.92 billion from the public offering that will end on Friday. It will be the largest float and red-chip listing in Hong Kong this year. CNOOC, indirectly controlled by the mainland's third-largest oil company, China National Offshore Oil, will offer 200 million ordinary shares, or 10 per cent of the whole issue, at between HK$8.46 and $9.61 each. The price range represents between 21.48 and 24.04 times this year's prospective earnings on a pro forma, fully diluted basis. The final price is expected to be fixed on Friday, with the shares' trading debut scheduled for October 21. Salomon Smith Barney and BOCI Asia are the global co-ordinators of the issue. CNOOC will be 75 per cent indirectly held by China National Offshore Oil after the listing. However, the shareholding will be diluted to 72.3 per cent if an over-allotment option is exercised. It has forecast a 102.06 per cent jump in net profit this year to more than 3.03 billion yuan (about HK$2.82 billion), mainly due to higher oil prices and cost controls. Director Gao Huaizhong said it was difficult to predict the movement of oil prices. As a result, the company did not hedge against fluctuations in the futures market because hedging itself would entail risks, he said. Mr Gao said the company would continue to step up cost controls to protect and enhance profitability. It cited average production cost at US$8.57 per barrel of oil equivalent (BOE), compared with the industry average of about US$12.92 in the two-year period to 1998. Mr Gao dismissed concerns about the possible impact brought by the planned overseas listings of its top two mainland clients, as well as competitors China Petrochemical Corp and China National Petroleum Corp. The two other oil giants would need CNOOC's products because the mainland's oil output fell short of demand, he said. Also, CNOOC had the flexibility to adjust its portion of domestic and overseas sales. Prudential Portfolio Managers (Asia) regional director Andrew Look said fund managers might want to buy the stock on anticipation that it would be included in the Hang Seng Index because of its sizeable market capitalisation. Based on the company's offer price range, CNOOC could break into the SAR's top 10 listed companies by market capitalisation with a value of more than HK$67.68 billion. It would become the world's largest publicly floated oil and gas exploration and development company with reserves of 1.7 billion BOE. 'However, there has been concern over the oil price outlook after it has risen about 100 per cent [this year],' Mr Look said. Another fund manager said: 'The scarcity value of the stock will diminish if the other two mainland oil giants list abroad in 12 months.' CNOOC focuses on mainland offshore oil and gas exploration and development with the exclusive right to take up to 51 per cent in production-sharing contracts with overseas investors at no cost. Mr Gao said the company had huge development potential, given that 74 per cent of its reserves were undeveloped, and that it had a high exploration success rate of about 54 per cent.