Cnooc Ltd. (CEO), China's biggest offshore oil and gas producer by output, on Wednesday posted a 34% fall in 2009 net profit due to lower crude oil prices and higher operating costs, but said it expects its net profit this year to be boosted by increased production and higher energy prices as domestic demand recovers.

Like other major Chinese oil producers, Cnooc plans to raise its crude oil and natural gas output in 2010. It said Wednesday it is targeting a 21%-28% increase this year, supported by China 's measures to strengthen its economy, and is also in talks to expand its overseas interests to boost its reserves.

Net profit for the 12 months ended Dec. 31 totaled CNY29.49 billion (US$4.34 billion), down from CNY44.38 billion the previous year. Revenue fell 16% to CNY105.20 billion from CNY125.98 billion as its average selling price of crude oil fell 32% to US$60.61 a barrel last year.

Cnooc hopes to expand its overseas operations through acquisitions to boost its oil and gas reserves, Chairman Fu Chengyu told reporters at a press conference.

He said the company is in talks with U.K.-based Tullow Oil PLC (TLW.LN), France 's Total SA (TOT) and the Ugandan government to finalise a potential investment in the African country.

"We are working with Tullow, Total and the government to finalize the way of joint cooperation," Fu said.

"The Ugandan government has yet to approve or finalize the project, but all the relevant parties are working with the government. We are not sure what the government's decision will be or when it will be announced, but we hope for a win-win solution," he said.

Cnooc, Total, and Tullow have formed a partnership and will jointly invest at least $5 billion to develop Uganda 's downstream oil industry.

Fu also denied the company was in talks to buy stakes in Nigerian oil blocks controlled or operated by western groups, referring to a Financial Times report. In September, the newspaper reported Cnooc was in talks with Nigeria to buy large stakes in 23 of its oil blocks controlled or operated by western groups, citing a letter from the office of the Nigerian president.

Cnooc, a unit of China National Offshore Oil Corp., said earlier it had targeted compound annual oil and gas output growth of 6%-10% between 2011 and 2015.

China is driving global oil demand, mainly because energy-intensive infrastructure projects were a major beneficiary of Beijing's CNY4 trillion stimulus program, and the International Energy Agency has forecast the country will account for a quarter of the total increase in global oil consumption this year.

While Europe and the U.S. are struggling to reignite their economies, China is targeting economic growth of around 8% this year, and the projected increase in industrial activity will boost demand for transport fuels such as diesel and gasoline. China 's continued stimulus spending will also support the continued consumption of petroleum products such as bitumen, used to build roads.

In 2009, Cnooc's operating expenses increased 25% to CNY12.49 billion from CNY9.99 billion a year earlier because of costs related to the commencement of oil and gas field production and upgrades to operational equipment, the company said.

Cnooc Chairman Fu Chengyu said the company will strengthen its cost controls.

"Despite the industry's general upward trend of costs, Cnooc has maintained its hard-earned cost advantage," he said. "Of course, our objective is not to ensure that our costs don't increase at all, but to maintain and leverage our relative cost advantage in the industry."

The company proposed a final dividend of HK$0.20, unchanged from a year earlier.

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