China National Offshore Oil Corporation (CNOOC) Ltd Monday said its profits last year rose by a record 31.9 percent over the level of 2002 on the back of higher oil prices.

But the company said production costs were increasing last year as they were developing more geographically complex heavy oil fields. And the cost is expected to remain high this year, CNOOC Chairman and CEO Fu Chengyu said Monday at an analysts conference.

CNOOC yesterday said its profits increased by 31.9 percent year-on-year to 11.98 billion yuan (US$1.45 billion) last year under US accounting standards. The profit, which is 11.54 billion yuan (US$1.39 billion) based on Hong Kong standards, is within market expectations.

Profit margins improved to 41 percent from 38.8 percent, the company said in a statement. The strong performance is mainly attributed to last year's oil price rally, which allowed the company to sell oil US$3.80 a barrel higher than that of 2002.

"High commodity prices helped push CNOOC's profits to a record level in 2003. Even with slight increases in costs, we continue to see margin expansions in operating results," Fu said in a prepared statement.

CNOOC said its oil and gas output rose 2.9 percent during the year to 130.2 million barrels of oil equivalent (BOE). That production is lower than the company's earlier target of 134-138 million BOE.

The company earlier said that the complex geological structure from some producing fields may cut production by 5-6 million BOE from the original plan and add to the costs. CNOOC's offshore China production costs rose to US$9.62 per barrel of oil equivalent (BOE) last year from US$8.48 in 2002.

"The cost pressure remains this year," Fu said at the conference. "The cost is on the peak last year and this year... it will gradually lower in 2005."

Company officials said they are still on track to increase production in the long run.

CNOOC officials said the newly discovered and acquired reserves last year helped increase the company's total reserves by 260 million BOE to about 2.1 billion BOE.

"Exploration programmes delivered impressive results. They have laid the foundation for further growth by the company in the future," Fu said in the statement.

CNOOC Ltd yesterday also announced a normal dividend of 12 HK cents (1.5 US cents) per share and a 18 HK cents (2.3 US cents) per share special dividend.

"The financial performance by the company in 2003 was excellent. The special dividend is an extra bonus to our shareholders, reflecting this management's confidence in the company's future and its optimism in the commodity price movement," CNOOC Chief Financial Officer Mark Qiu said.

Analysts said the company's profits will fall this year as production costs rise and output growth slows.

Shares in CNOOC rose 0.9 percent yesterday to close at HK$16.70 (US$2.1) in Hong Kong before the earnings were released.

(China Daily March 16, 2004)