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US-China tensions

China oil group chief blames US sanctions on 'misunderstanding'

Overseas M&A an option to meet CNOOC's natural gas output target

Hong Kong-listed CNOOC's state-owned parent group was alleged to have ties to China's military by the administration of former President Donald Trump   © AP

HONG KONG - The CEO of China oil group CNOOC has blamed its blacklisting by the U.S. on a "misunderstanding" and said he wants dialogue with Washington to resolve the issue.

Xu Keqiang leads Hong Kong-listed CNOOC, a unit of China's major state-owned oil producer, China National Offshore Oil Corp. The parent group, which is unlisted, was alleged to have ties to China's military by the administration of former President Donald Trump, leading to sanctions against the group late last year.

"We think there is a misunderstanding about CNOOC with regard to sanctions by the U.S.," Xu told reporters on Thursday at an online briefing on its annual business strategy and development plan.

China National Offshore Oil Corp. holds a majority of the shares in the listed unit and has the same acronym. Xu, who doubles as a board member of the parent company, is the highest ranking official from the state oil company to publicly speak to Western media since the company was penalized.

Xu said he was "astounded" and "regretful" over the decision made by the Trump administration. He said he was willing to engage in an "effective communication with the U.S. government, in order to promptly eliminate misunderstanding and swiftly shift out from the sanction."

He did not elaborate on how this could take place but the timing of his speech suggests this is another signal from Beijing of its readiness to open up renewed dialogue with the Biden administration, which took office on Jan. 20.

CNOOC was blacklisted over its alleged military ties along with other Chinese companies such as Semiconductor Manufacturing International Corp. According to then-U.S. Secretary of State Mike Pompeo, these companies were accused of being "responsible for, or complicit in, either the large-scale reclamation, construction, or militarization of disputed outposts in the South China Sea, or use of coercion against Southeast Asian claimants to inhibit their access to offshore resources in the South China Sea."

CNOOC holds number of oil and gas assets in the South China Sea.

Xu did not discuss details of the allegations raised by Washington, but said the recent recovery of stock prices after a bout of volatility had given him the "conviction" that delivering results is the way to gain recognition from the market.

The Hong Kong-listed shares dropped to 6.50 Hong Kong dollars in early December but closed at HK$8.45 on Thursday.

Xu also presented aggressive targets for CNOOC, saying production for this year would be between 545 million and 555 million barrels of oil equivalent, a standardized measurement of energy output. This is between 3.2% and 5.1% more than in 2020, and would mark a record high.

Compared to last year's original production target, the higher end of the 2021 goal represents close to 10% growth. By 2023, the company intends to raise annual production to between 640 million and 650 million BOE.

A big portion of the increase is expected to come from natural gas, which CNOOC said would reach 30% of its total energy output in 2025 compared to 21% in 2020.

Xu said this could be achieved through a combination of enhancing existing assets, opening new projects and potential foreign acquisitions.

China United Coalbed Methane Corp., a domestic oil and gas producer acquired from its parent CNOOC for 5.33 billion yuan ($826 million) in August 2019, has been gradually increasing gas production according to Xu. Two new projects to commence this year -- in the South China Sea and the Bohai Sea in northern China -- are deemed to be his main prospects.

"Of course in the future, overseas natural gas acquisition is part of the important strategic consideration," Xu said.

Chinese oil companies including CNOOC have not been so active in overseas dealmaking in recent years, but Xu may have been signaling the shift back to seeking foreign energy assets against the backdrop of a growing need for energy security and a rising yuan.

The company said total capital expenditure for this year could go up to 100 billion yuan, 25.8% more than last year.

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