China National Offshore Oil Corporation - Operations

Operations

CNOOC has established six business sectors ranging from exploration and development of oil and gas, technical services, logistic services, chemicals and fertilizer production, natural gas and power generation to financial services and insurance.

In 2004, CNOOC generated revenue of RMB 70.92 billion and net profit of RMB 24.22 billion, and RMB 12.09 billion in taxes in 2004, up 32%, 62% and 80% respectively from the previous year. By the end of 2004, total assets and nets assets had reached RMB 153.26 billion and 83.06 billion, a 28% and 21% increase from the beginning of the year. It is the fifth and 12th in gross profits and totals assets among state-owned enterprises in China. Standard & Poor's and Moody's Investors Service assigning CNOOC a long term BBB+ and A2, equivalent to China' sovereign rating and the highest ratings for Chinese companies.

Exploration and production of oil and gas saw a steady growth in 2004. The output reached 36.48 million tons of oil equivalent, increasing by 3.12 million ton or 9% as compared with 2003. Its domestic production reached 24.72 million ton, an increase of 11% from the previous year, higher than the average national growth rate of 3%. Annual output in Bohai Bay exceeded 10 million ton of oil equivalent for the first time, making it the second major offshore producing area with an output of over 10 million ton in China after Eastern South Sea and an important energy production base in northern China.

CNOOC has set up CNOOC Gas & Power focusing on the downstream development of gas distribution and gas power generation. CNOOC has become China's dominant producer of liquefied natural gas in the past few years. In an increasingly competitive domestic LNG market, CNOOC concluded all mid- and down-stream contracts in the Guangdong and Fujian LNG projects, to import 3.5 million ton per annum(mpta) and 2.6 million mpta LNG respectively from Australia's North Western Shelf project (NWS) and Indonesia's Tangguh field operated by BP. LNG projects in Zhejiang and Shanghai started construction, and CNOOC also signed head of agreements (HOAs) on LNG cooperation with Liaoning, Tianjin, Hebei, Hainan and Jiangsu, although these plans are not finalized. So far CNOOC has completed its preliminary strategic deployment in natural gas industry in the coastal areas south to the Yangtze River. In these projects, CNOOC is responsible for both the construction of LNG receiving terminals and trunklines for gas transmission as well as the construction of gas-fired power plants.

In April 2004, the Ministry of Commerce granted CNOOC-SINOPEC United International Trading a license to import crude oil. Previously, CNPC, Sinopec, Sinochem and Zhuhai Zhenrong had been the only companies which imported crude oil to China. In July, the NDRC approved the Nanhai Refinery Project with an annual capacity of 12 million ton, a joint venture between CNOOC and Royal Dutch Shell and the largest joint venture ever in China. CNOOC had established integrated industrial portfolio as it expanded into the refining business, and CNOOC was preparing itself for the retail and wholesale of refined oil, the business which used to be monopolized by CNPC and Sinopec. Shell went ahead with the JV ethylene plant ($4.3 bn), but in 2007 announced it would not take part in the refinery ($2.4 bn).

The three listed companies under CNOOC had remarkable performances in 2004. The share price of CNOOC Limited rose by 37%, and its market capitalization reached RMB 181.68 billion. The share price of CNOOC Engineering listed in the Shanghai Stock Exchange rose by 66.11%. The market capitalization of China Oilfield Services reached RMB 10.1 billion. At the end of 2004, market capitalization of the three listed companies had approached RMB 200 billion, 3.3 times as much as their net assets. The value of state-owned assets was effectively increased.

CNOOC makes continuing efforts in various areas including oil and gas exploration and development, exploitation of overseas resources, development of midstream and downstream business and establishment of modern business system in 2005, to build an integrated energy company with international competitiveness and modern management system by 2008 with fast and quality growth and strong profitability. It aims to develop into a world-class integrated international energy company.

Under ex-CEO Wei Liucheng, who was promoted to the governor of Hainan province in October 2003 as a reward for his outstanding work, and the incumbent chairman and chief executive Fu Chengyu (傅成玉), CNOOC took aggressive measures in merges and acquisitions relevant to core business in recent years, among which it acquired five blocks in Indonesia from Spanish oil company Repsol in 2002 and became the largest offshore operator. In 2003, it bought 5.3% of interests in NWS ensuring the supply of Guangdong LNG project, in the same year it exercised the preemption right to acquire 12.5% of interests in Tangguh to ensure the supply of Fujian LNG project. CNOOC also sought to acquire a 12.5% interests in Australia's Gorgon field to ensure the supply of Shanghai and Zhejiang LNG projects, however this fell through when the parties could not agree on a price.

According to SASAC in December 2008, CNOOC made a light oil and gas discovery in the 100 million tonne class at its Jinzhou 25-1 field in Bohai Bay. In May 2009, the company announced a plan to build a $4.38 billion coal-based natural gas project in Shanxi.