Aug. 27 (Bloomberg) -- Cnooc Ltd., China’s third-biggest oil company, posted a higher profit than analysts expected and said it will step up exploration and acquisitions to increase reserves and meet demand in the country.

Net income fell 55 percent to 12.4 billion yuan ($1.8 billion) in the first half, Cnooc said in a statement in Hong Kong yesterday. Crude oil prices will likely remain at current levels and the company plans to boost exploration, especially off China’s coast, Chairman Fu Chengyu said at a media briefing.

Oil has more than doubled from its February low as the global recession eased, with China’s economic growth accelerating to 7.9 percent in the second quarter. Fu said Cnooc has changed its overseas acquisition strategy to focus on taking stakes in ventures rather than buying out companies to fight rising protectionism after failing to buy Unocal Corp. in 2005.

“China is importing about half its oil and demand is increasing, so companies like Cnooc need to secure more reserves,” said Wang Aochao, head of China energy research at UOB-Kay Hian Ltd. in Shanghai. “Cnooc is developing oil and gas fields off China’s coast but also needs to secure supplies overseas. This is something the government is encouraging Chinese oil majors to do for energy security.”

Oil futures in New York have climbed to above $71 a barrel from a low of $33.55 Feb. 12 on speculation the global economy is recovering. Cnooc has gained 45 percent in Hong Kong trading this year as an expanding economy boosted fuel consumption.

Cnooc fell 0.8 percent to HK$10.56 at 10:34 a.m., compared with the Hang Seng index’s 1 percent drop, as Asian stocks declined after China said it may curb overcapacity in steel. Morgan Stanley raised its Cnooc target to HK$11.70 from HK$10.80.

‘Organic Growth’

China’s economic growth quickened from 6.1 percent in the first quarter. The world’s second-largest energy user processed a record volume of crude oil in July as industrial production climbed almost 11 percent.

“The economic recovery is positive for the company’s performance,” Chairman Fu said yesterday. “Nevertheless, it’s our organic growth that will help us ride through the ‘winter’ quickly.”

New oil and gas projects have started operations in China, Indonesia and Nigeria, and net production may rise more than 15 percent this year, Fu said.

About 83 percent of Cnooc’s reserves are off China’s coast. The company also has petroleum interests in Australia.

Cnooc’s first-half profit beat the median estimate of 11.5 billion yuan in a Bloomberg News survey of seven analysts. The average cost of producing a barrel of oil fell 1.4 percent to $19.50 from a year earlier and Cnooc will seek to maintain its “low-cost advantage,” according to the statement.

Overseas ‘Cooperation’

Cnooc will focus on “cooperation” to boost its overseas output, Fu told reporters at the media briefing. The company can’t make “mass-scale acquisitions” because of rising protectionism amid the global economic slowdown, he said.

Opposition to Chinese investments helped block Cnooc’s $18.5 billion bid for Unocal. “The failure of Unocal has made the company more cautious,” Fu said. “Not all acquisition opportunities are good.”

Cnooc and China Petroleum & Chemical Corp. said last month they agreed to acquire a 20 percent stake in an offshore block in Angola for $1.3 billion from Marathon Oil Corp., the fourth- largest U.S. oil company.

The transaction is subject to government approvals and may face obstacles as Sonangol SA, Angola’s state-owned oil company, “has the intention to exercise its preemptive rights” over the stake offered by Marathon, Fu said. “We need to wait for their final decision.”