Cnooc Ltd. (0883.HK) shares surged nearly 3% in Hong Kong on Monday, buoyed by news that the blue-chip offshore oil producer signed a deal Friday to develop coalbed methane in China over the next three decades and would commit 9.93 billion yuan ($1.56 billion) toward exploration in the initial five years.
Cnooc Ltd. (0883.HK) shares surged nearly 3% in
Hong Kong
on
Monday, buoyed by news that the blue-chip offshore oil producer signed a deal
Friday to develop coalbed methane in
China
over
the next three decades and would commit 9.93 billion yuan ($1.56 billion)
toward exploration in the initial five years.
Analysts said that even though the deal will have little immediate impact on
Cnooc's earnings, it marks a longer-term effort by the company to shift its
resource base to more unconventional supplies, following its megadeal to buy
Canadian oil producer Nexen Inc. for $15.1 billion last month.
At 0616 GMT, Cnooc's shares were 2.7% up at HK$15.76, after hitting an intraday
high of HK$15.84. In comparison the benchmark Hang Seng Index rose 1.85%.
"This is a more reasonable move, compared with the Nexen transaction, as
it fits into Cnooc's strong competence in
China
,"
Bank of American Merrill Lynch analyst Thomas Wong said in a note. "We
continue to view [2013] as a very difficult year for Cnooc, with slow
production growth and integration issues with Nexen."
Cnooc targets to increase production of oil and gas between 6% and 10% annually
through 2015. However, output has been disrupted by several oil spills last
year at its Penglai 19-3 field in
Bohai
Bay
,
northeast
China
, and
the slow development of its offshore deepwater blocks in the
South
China Sea
. Cnooc produced 331.8 million barrels of oil and
gas in 2011, up just 0.7% from a year earlier.
As a result, the company is stepping up efforts to tap into alternative sources
of energy, including coalbed methane, a type of clean-energy source, and
shale-gas extraction.
Under Friday's agreement, Cnooc and its partner China United Coalbed Methane
Corp.--which is jointly owned by Cnooc's parent China National Offshore Oil
Corp. or Cnooc Group, and state-owned China National Coal Group--aim to
explore, develop and produce coalbed methane gas in
China
for
30 years.
Cnooc Ltd. will be responsible for the entire cost of exploration, which will
take place over the next five years. If successful discoveries are made, CUCM
has the option to increase its participating interest from zero to 50% and pay
for its share of the development and production costs, Cnooc said in a
statement.
China
says
it has vast recoverable resources of coalbed methane--about 10.9 trillion cubic
meters--but it is far from meeting ambitious CBM output goals due to complex
geology, high distribution costs and unattractive joint-venture terms.
It has a target of 16 billion cubic meters of CBM output a year by 2015, but
produced just 2.3 billion cubic meters last year, a tiny share of national gas
use. China's apparent consumption of natural gas rose 20.6% to 129 billion
cubic meters in 2011, according to China National Petroleum Corp.
Meanwhile, although China's development of shale gas has received more
attention in recent years because of its higher resource potential, it is
unlikely to exceed China's coal-to-gas and coalbed-methane gas output before
2024, analysts at energy consultancy Wood Mackenzie said in June.
"These sectors are therefore far more significant through the medium
term," said Gavin Thompson, head of Asia-Pacific gas research at Wood
Mackenzie, in a separate statement.
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