China's top offshore oil and gas producer CNOOC Ltd, said yesterday that it would increase development spending and target a 19 per cent year-on-year growth in oil and gas production in 2005.

Unveiling its business strategy for 2005, the company said that it would further develop natural gas projects and focus on building terminals and securing overseas supplies of liquefied natural gas (LNG).

Fu Chengyu, chairman of CNOOC, said the company aimed to produce 141-146 million barrels of oil equivalent (BOE) in 2005, compared with its estimated 2004 output of 118-123 million.

"2005 will be a significant year in the company's production growth," said Fu. According to him, 16 projects are expected to begin operating between 2005 and 2006, nine of which will be completed in 2005, a record for the company.

As a result, CNOOC has to increase development spending to US$2.2 billion, a 33 per cent increase over 2004. While the exploration budget is expected to remain at approximately US$260 million.

"Development expenditure has to rise as we have 16 projects in the pipeline for this year and the next. Higher prices for raw materials like steel and inflation have also contributed to increased spending," Fu told reporters at a press briefing in Hong Kong yesterday.

When asked whether the increased spending would result in higher operating costs, CNOOC's Chief Financial Officer Yang Hua said the company would "continue to maintain our competitive cost structure and take all necessary measures to ease the upward pressure."

Fu said CNOOC would also focus on developing its LNG business in 2005. "Demand for LNG is increasing in China and we expect significant growth in the coming two years," he said, without offering any projected figures.

China National Offshore Oil Corp, parent of New York and Hong Kong-listed CNOOC, has invested heavily in building import terminals for LNG in Guangdong, Fujian and Zhejiang provinces as well as Shanghai, which are scheduled to come on stream between 2006 and 2008.

Separately, the company chairman declined to comment on recent media reports that CNOOC was considering buying the Asian assets of US oil producer Unocal Corp, saying CNOOC is always looking for acquisition opportunities.

CNOOC is expected to announce its final operational data and 2004 financial results in March.

Shares of CNOOC finished 1.23 per cent higher at HK$4.125 (53 US cents) in Hong Kong yesterday.

Liu Yang, managing director of Atlantis Investment Management, was quoted by Reuters yesterday as saying that she thinks the stock is a good buy as the Chinese energy sector is hot and both the top and bottom lines of Chinese oil companies are surging.

The stock, a constituent of the benchmark Hang Seng Index, has gained nearly 29 per cent in the past year, compared with a nearly 12 per cent growth for competitors PetroChina and a 0.8 per cent drop for Sinopec.

Editor: Olivia