China's CNOOC post 9.3 per cent profit drop as exploration, oil sands costs bite

HONG KONG – State-owned CNOOC, which made China’s biggest-ever overseas energy acquisition last year, said Friday that annual profit fell 9.3 per cent because of higher costs for exploration and for operating in Canada’s oil sands.

CNOOC Ltd.’s $15.1 billion purchase of Canadian energy producer Nexen was part of a broader trend of Chinese resources companies making foreign acquisitions to get better access to key commodities as well as become global competitors.

The Beijing-based company, China’s main offshore energy producer, said that while oil and gas sales grew last year because of “stable growth” in production, it suffered from higher expenses to operate and maintain existing wells.

Foreign operating expenses, in particular, jumped by a quarter because a higher proportion of production came from the Canada’s tar sands, where costs to extract oil are significantly higher than conventional crude projects.

CNOOC also said exploration costs rose 73 per cent to 9 billion yuan as it continued to survey and drill more test wells in China’s offshore oil fields.

The company said profit fell to 63.7 billion yuan ($10.2 billion) in 2012 from 70.3 billion yuan the year before. Revenue climbed 3 per cent to 247.6 billion yuan.

“The company will continue its efforts to control costs, enhance profitability and create greater value for our shareholders,” chief executive Li Fanrong said in a statement. “Looking ahead into 2013, we will carefully cope with the uncertainties of the world economy and the unstable international geopolitical situation.”

Li said the acquisition of Nexen was an “important milestone on the company’s road to internationalization. The purchase had raised fears in Canada about a flood of foreign takeovers in the energy sector.” Li said the company was aware of the “arduousness” of integrating the mid-tier energy company.