No cheap drill

21 August 2012 By John Foley Follow @johnsfoley

CNOOC’s $15 bln tilt at Canada’s Nexen seems an expensive distraction, especially since the Chinese oil major has cut its dividend, has flat output and rising costs. Yet CNOOC needs a booster. Nexen’s drilling expertise could help it squeeze more out of its domestic business.

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CNOOC Ltd, the Chinese offshore oil producer, reported first-half earnings of 32 billion yuan ($501 million), down 19 percent from the same period a year earlier. Rising oil prices were offset by increased costs and a bigger tax bill. Total oil and gas revenue was 96 billion yuan.
The company’s production, equivalent to 161 million barrels of oil for the six months, was 4 percent below levels in the first half of 2011, partly as a result of the Penglai oil spill, which led to the shutdown of a major oil field. CNOOC has set a target of increasing production by 6-10 percent a year between 2011 and 2015.
CNOOC said on July 23 it had agreed to take over Nexen, a Canadian oil and gas producer with operations in Canada, the Gulf of Mexico, Nigeria and the North Sea, for $15.1 billion in cash. The Canadian, U.S. and Chinese governments must approve the transaction.
Shares in CNOOC, which are traded in Hong Kong, were down 4.2 percent by 1400 local time, at HK$14.92. That was 3.4 percent below their closing price before the Nexen deal was announced.

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