China Will Start New Oil Field after Crude Spill

China will start new oil fields and stabilize production after crude spills and a delay in completing an overseas acquisition forced the company to cut its annual output target.

Beijing-based Cnooc reported a record half-year profit yesterday and reduced its full-year output estimate by as much as 9.3 percent because oil leaks disrupted operations at China’s biggest offshore field, called Penglai 19-3, and unit Bridas Corp. fell behind schedule for completing the acquisition of a $7.1 billion stake in Pan American Energy LLC.

“Their focus in the second half is really to continue stable production and to restart the Penglai output as soon as possible,” Neil Beveridge, a senior analyst at Sanford C. Bernstein & Co. in Hong Kong, said by telephone. “Also, if they can complete the Pan American deal before the end of the year.”

Cnooc has declined 21 percent in Hong Kongtrading this year, outpacing the 14 percent drop in the benchmark Hang Seng Index. (HSI) The stock advanced about 3.5 percent to HK$14.72 as of10:51 a.m. local time.

Net income grew 51 percent to a record 39.34 billion yuan ($6.2 billion) in the first six months from a year earlier, beating analyst estimates, after crude prices rose and Cnooc increased output by 13 percent to meet demand in the fastest- growing major economy.

The Chinese energy explorer cut its annual output target to 331 million to 341 million barrels, from a goal of as much as 365 million barrels it had set in January. Oil and gas production accounts for 99 percent of its income.
Production Loss

Cnooc and partner ConocoPhillips halted two platforms at Penglai 19-3 in Bohai Bay on July 13, following two spills in June. Operator Conoco said on Aug. 17 it had resumed partial production.

China’s State Oceanic Administration is preparing to file a lawsuit demanding compensation for harm to marine ecology from the leaks, according to a statement on the authority’s website.

Startup of fields off the eastern coast would help offset the Penglai crude output loss of 22,000 barrels a day, about 3 percent of Cnooc’s oil and gas production last year. Weizhou 11- 2 and Lufeng 13-2 fields in the South China Sea are scheduled to begin operations in the second half, Cnooc said.

“The revised target is certainly achievable,” said Brynjar Eirik Bustnes, the Hong Kong-based head of Asia Pacific oil and gas research at JPMorgan Chase & Co. “They’re talking about two to three new fields starting. They need those just to maintain production at the current level.”
Pan American Deal

Bridas, an oil company controlled by Cnooc and Argentina’s billionaire Bulgheroni family, agreed in November to acquire BP Plc’s 60 percent it doesn’t already own of Pan American Energy. The deal, which was due to be completed by June 30, is subject to government and regulatory approvals, Cnooc said yesterday.

Approvals may be delayed until afterArgentinavotes in a presidential election in October, Yang Hua, Cnooc’s chief executive officer, told reporters inHong Kongyesterday.

“We certainly hope the deal can go through as early as possible, but everyone has to be patient and wait for the Argentine government to sort out their issues first,” Yang said.

BP expects the deal to be completed this year, Robert Wine, the company’s London-based spokesman, said by e-mail.

Cnooc’s purchase of a one-third share in three exploration blocks in Uganda is also awaiting approval by the African country’s government, President Li Fanrong said. It may take as many as six years, upon getting approval, to increase the output of the oil blocks to 200,000 barrels a day, Li said.

Tullow Oil Plc, aU.K.explorer, said yesterday it expects to complete the sale of its interests in the Ugandan exploration blocks to Total SA and Cnooc for $2.9 billion in September.
Overseas Expansion

Cnooc has bid for at least $12 billion of assets overseas since the beginning of last year to boost output and reserves.

The explorer last month agreed to buy bankrupt oil-sands producer Opti Canada Inc. (OPC) for $2.1 billion in cash and debt, after the $570 million purchase of a one-third stake in Chesapeake Energy Corp.’sNiobrara shale-gas project.

Cnooc benefited from crude’s surge to the highest in more than two years in the first half as it increased production by 13 percent. Revenue gained 51 percent to 124.6 billion yuan, while output rose to the equivalent of 168.7 million barrels of oil, according to yesterday’s statement.

Oil Prices

“It’s a record profit because of oil prices, and that won’t repeat itself in the next half as crude has already pulled back,” said Laban Yu, an analyst at Jefferies Group Inc in Hong Kong.

Crude in New York averaged $98.50 a barrel in the first half, compared with $78.46 a year earlier. The price has fallen 11 percent since the beginning of the second half, averaging $92.02, on speculation a slowing U.S. economy and Europe’s debt crisis will lead to weaker oil demand.

Cnooc will focus on maintaining “stable production of oil and gas fields and implement measures ensuring that the revised annual production targets can be achieved,” CEO Yang said. It will also work on “the integration and management on overseas acquisition projects and ensure that the projects progress smoothly.”

China offshore CNOOC Purchase Canadian Oil Sand producer OPTI

China National Offshore Oil Corp. is purchasing Canadian oil sands producer OPTI for $2.1 billion.

CNOOC Ltd. is China’s dominant offshore oil producer and has been aggressively purchasing overseas unconventional energy resources.

CNOOC said in a news release that it will pay $34 million for OPTI’s outstanding shares as well as assuming OPTI’s more than $2 billion in debt, the Shanghai Daily reported Thursday.

“The company will monitor trends in global energy markets and continue to look at and select projects,” said CNOOC Chief Financial Officer Zhong Hua. “As the company currently has relatively ample cash, we will consider any projects that fit our strategy.”

OPTI’s assets include proven oil sands reserves of 195 million barrels of extractable oil. Zhong said the acquisition of OPTI will boost CNOOC’s proven reserves by 5.3 percent and production by 1 percent.

Despite relatively high initial production costs, oil sands are expected to play an increasingly significant role in the oil sector. The International Energy Agency predicts that unconventional sources of oil will meet 10 percent of global demand by 2035 as compared with 3 percent two years ago. In that mix, Canadian oil sands will become an increasingly significant element.

OPTI has been struggling financially since the Toronto Stock Exchange halted trading of its stock. The company is under a delisting review after losing more than 90 percent of its value in the past year.

Struggling with its finances for more than a year, OPTI had been conducting a strategic review, hoping that a corporate or asset sale would help resolve cash flow problems.

The OPTI board of directors voted unanimously in favor of the CNOOC transaction as being in the company’s best interests.

“CNOOC Ltd. is a technically experienced and well-capitalized company that is equipped to support further development at Long Lake and future expansions in the Canadian oil sands,” OPTI President and Chief Executive Officer Chris Slubicki said.

CNOOC CEO Yang Hua said the OPTI acquisition strengthens his company’s Canadian presence in the oil sands market.

“We believe that upside potential of the assets will facilitate local energy supply and our production growth in the long term,” he said.

The OPTI deal isn’t China’s first foray into Canadian oil sands assets. In April 2010 Chinese company Sinopec spent $4.65 billion to acquire a stake in the Syncrude Canada Ltd., which owns the world’s largest oil sands mining operation north of Fort McMurray in Alberta. It also has a 50 percent stake in Total E&P Canada’s Northern Lights project.

China Oil Refiner Sinopec Deal to Buy Oil and Gas Occidental Petroleum in Argentina

China oil refiner China Petroleum & Chemical Corporation known as Sinopec Group, deal to buy Occidental Petroleum Corp.’s oil and gas assets in Argentina for $2.45 billion. The deal marks the Beijing-based company’s entry into the Latin American country’s oil and gas industry.

Sinopec will acquire all the assets of Occidental Argentina Exploration & Production Inc. and certain affiliates according to the deal, collectively known as Occidental Argentina. The acquisition will also diversify Sinopec’s oil sources in South America this year to more than $15 billion as energy demand rises in the world’s fastest-growing major economy.

Occidental Argentina has interest in 23 production and exploration concessions in Argentina’s Santa Cruz, Mendoza and Chubut provinces and the company operates 19 of them. Last year, the unit’s production from 22 producing concessions totaled over 51,000 barrels of oil equivalent per day. It has gross proven and probable reserves of 393 million barrels of oil equivalent. OXY rose $0.18 and ended trading at $91.07 on Thursday on 3.26 million shares.

Sinopec’s move follows last month’s announcement by BP Plc that it agreed to sell its 60% stake in Argentina-based Pan American Energy LLC to CNOOC International Ltd., the international arm of China National Offshore Oil Co. and Bridas Energy Holdings, for $7.06 billion.

Sinopec agreed to pay $7.1 billion for a 40% stake of Spanish oil company Repsol YPF SA’s Brazilian unit in October,. Last year, Sinopec bought Geneva-based oil and gas explorer Addax Petroleum Corp. for C$8.3 billion to gain access to Addax’s reserves off the coast of West Africa and in Iraq. SNP closed Thursday’s trading at $91.78, down $0.43, on a volume of 149,600 shares. Almost half of the net growth in global oil demand through 2035 will come from China, pushing the crude oil price to over $100 per barrel after 2015.

China Offshore Company Buy Chesapeake Energy Oil and Gas Field

Favoritearea.com – Offshore oil and gas company China buy a one-third interest in 600,000 acres that Chesapeake Energy leases in a South Texas oil and gas field. CNOOC Ltd. and Oklahoma City-based Chesapeake announced the deal worth up to $2.16 billion Sunday in the Eagle Ford Shale project between Laredo and San Antonio. A joint statement says CNOOC will pay Chesapeake $1.08 billion in cash at closing and share 75 percent of Chesapeake’s drilling and completion costs up to another $1.08 billion.

Chesapeake expects to produce 400,000 to 500,000 barrels of oil equivalent per day at the project’s peak. For Chesapeake, the deal provides capital to put towards drilling and other aspects of its Eagle Ford operation. For its part, CNOOC is looking to tap into the expertise that Chesapeake has used to cheaply tap reserves of oil and gas buried deep in shale rock formations. Chesapeake has entered into similar deals with other foreign oil and gas companies like Statoil of Norway and Total of France.

Chesapeake chief executive Aubrey McClendon said in an interview that CNOOC probably wants to “see how an American independent (oil and gas company) conducts its business and learn a few things along the way.” Chesapeake currently has 10 rigs developing its Eagle Ford lease. The additional capital from CNOOC should allow it to boost that total to 12 rigs by the end of this year, 31 rigs by year-end 2011 and about 40 rigs by year-end 2012.

Eagle Ford shale is expected to contain mostly oil and natural gas liquids, as opposed to strictly natural gas. Chesapeake is in the midst of an effort to expand its shale oil drilling operations.

Development of cheaply accessible natural gas resources by Chesapeake and others has pushed natural gas prices to below $4 per 1,000 cubic feet. It is far more profitable to instead drill for oil, which is trading above $82 per barrel. Deal is the second in as many days for CNOOC. It announced Saturday that it has bought 2.6 million tons of liquefied natural gas from French utility GDF Suez.