CNOOC profit plunges on rising costs

China National Offshore Oil Corporation said its net profit for the first-half of the year fell 19% to RMB 32 billion.

CNOOC said net oil and gas production fell 4.6% to 161 million barrels due mainly to the production shutdown last year of its Penglai 19-3 oil field, the largest in China. CNOOC is China’s largest offshore oil and gas producer and the third largest national oil company.

The shutdown followed the discovery of oil leaks at Penglai, which CNOOC operates jointly with ConocoPhillips Co. CNOOC was ordered by the government to stop all production so a full cleanup could be carried out.

Rising industry costs and changes in the company’s assets structure also helped pull down profit. These factors increased CNOOC’s cost per barrel in the first half to US$34.60, 13% higher than in 2011.

The company also cut its dividend by 40% to amass the cash needed for its acquisition of Canadian oil and gas company Nexen, Inc. CNOOC intends to buy Nexen for US$15 billion as part of its strategy of expanding aggressively overseas.

“Through the transaction, we will be able to expand our overseas business and resource base, enhance our presence in Canada, Gulf of Mexico and Nigeria, and enter the resourceful UK North Sea,” said CEO Li Fanrong. He said the deal would create long-term value for shareholders.