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CNOOC 1H profit down 19 percent on shutdown, costs

Kelvin Chan, AP Business Writer

Chairman of CNOOC Ltd. Wang Yilin, speaks at the company interim result announcement in Hong Kong Tuesday, Aug. 21, 2012. CNOOC, one of China's three major state-owned oil producers, said Tuesday that first-half profit fell 19 percent as it grappled with rising costs and a drop in production from an oil spill in China's Bohai Bay. (AP Photo/Kin Cheung)

HONG KONG (AP) -- Chinese oil company CNOOC Ltd., which is buying Canada's Nexen Inc. in a $15 billion deal, said Tuesday that first-half profit fell 19 percent as costs rose and a big oil spill in China's Bohai Bay cut production.

The Beijing-based company, one of China's three major state-owned oil and gas producers, made news in July with its purchase of Nexen, an oil and gas producer, the latest sign of China's hunger for overseas energy assets. If it goes through, it would be the country's biggest overseas energy acquisition.

The company cut its dividend by 40 percent to 15 Hong Kong cents a share to save up cash needed for the Nexen deal, part of CNOOC's strategy of expanding aggressively overseas. That means it would pay out $600 million less to shareholders than it did last year.

"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," chief executive Li Fanrong said in a statement, adding that the deal would create "long-term value" for shareholders.

CNOOC, China's biggest offshore oil and gas producer, said net oil and gas production fell 4.6 percent to 160.9 million barrels "mainly due" to the production shutdown at an oilfield in the bay off China's northwest.

The shutdown followed the discovery last year of oil leaks at the Penglai 19-3 oil field, the largest in China, which the company operates jointly with U.S. partner ConocoPhillips Co.

The public outcry over the spill's environmental damage was a public relations setback for the company. It was ordered by the government to halt all production so a full cleanup could be carried out.

Rising industry costs and changes in the company's assets structure also helped drag down profit. That pushed up CNOOC's cost per barrel in the first half to $34.60, 13.1 percent higher than in 2011, the company said.

CNOOC posted first-half profit of 31.8 billion yuan ($5 billion), or 0.71 yuan (12 U.S. cents) per share, down from 39.3 billion yuan, or 0.88 yuan per share, from the year before.

The company is confident it can meet a production target of 330 million to 340 million barrels for the year, although Li was not optimistic about the global outlook for the rest of 2012.

"For the second half of the year, the world economy will likely to continue to bear the downward pressure and international oil prices are expected to become increasingly volatile," he said in a statement.