CNOOC Chairman & Chief Executive Yu Fu Chengyu attends a news conference announcing the company's annual results in Hong Kong March 27, 2008. CNOOC is zeroing in on five refineries in eastern China for possible acquisitions as the offshore oil and gas specialist pushes ahead on downstream expansion plans, a Chinese paper reported. REUTERS/Bobby Yip

BEIJING (Reuters) - Chinese state oil firm CNOOC is zeroing in on five refineries in eastern China for possible acquisitions as the offshore oil and gas specialist pushes ahead on downstream expansion plans, a Chinese paper reported.

CNOOC has identified five plants as targets and is eying two more bigger plants to set up a refining base of more than 200,000 barrels per day in eastern province of Shandong, The Economic Observer said on Sunday.

The potential acquisitions are in parallel with CNOOC’s plans to start its first wholly-owned major refinery in southern China this October, as the company seeks establish itself as China’s third-largest refiner.

The targeted local plants are Fuhai Group, Kenli Petrochemical Company, Zhonghai Chemical, HaiKe Group and Shandong Shida Technology Group, each with processing capacity of 20,000-40,000 bpd, said the paper, without providing estimates on investment.

CNOOC is also looking at two bigger plants in Shandong each of 110,000 bpd capacity, and discussions were under way, said the paper.

“As the domestic Chinese fuel prices lag behind international markets and as the country frequently suffers from fuel shortage, it’s a best chance to acquire local refineries,” the paper quoted CNOOC’s spokesman Liu Junshan as saying.

Shandong boasts more than a third of China’s independent refining capacity, but most refiners there have been operating severely under capacity in the past few years, squeezed by record prices of feedstock -- mainly imported fuel oil-- and rigidly capped domestic fuel prices.

CNOOC, parent of CNOOC Ltd 0883.HK, will leverage its main offshore oil operations, which will provide its refineries access to cheap crude and income when downstream margins are slim with crude price hovering above $100 a barrel.

The oil refining and fuel marketing businesses of the world's second-largest consumer have long been dominated by Sinopec Corp 0386.HK and PetroChina 0857.HK.