China National Petroleum Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The China National Petroleum Corporation (CNPC) is a state-owned fuel-producing corporation in the People’s Republic of China (PRC). CNPC’s core businesses include oil exploration and production, natural gas and pipelines, refining and marketing, and chemicals and marketing. The company’s origin can be traced to its beginning as a government department of the PRC between 1949 and 1988. In a major initiative to separate government from business, CNPC was formally created in September 1988 as the largest state-owned oil and gas upstream corporation in China to replace the Ministry of Petroleum. In order to establish large-scale Chinese corporations to take on challenges of international competition, CNPC was restructured in July 1998 by the government, which made it China’s largest integrated energy corporation. Since then, CNPC has been growing rapidly. It ranked 80th in 2002, 46th in 2005, and 24th in 2007 in the Fortune Global 500. In 2005 it overtook U.S. giant Chevron and France’s Total to become the world’s seventh-largest oil firm on the basis of six indices, including oil and gas reserves, oil and gas output, and sales volume. CNPC’s growth strategy begins with focusing on its core businesses. Similar to other state-owned organizations in China, CNPC used to run “small societies” of its own, having a work force of 1.56 million in the late 1990s. During the 1998 restructuring, CNPC spun-off two-thirds of its high-quality assets and one third of its workforce in the core businesses of gasoline and natural gas production and marketing into a separate company, Petro-China, and then had it listed on the Hong Kong and New York stock exchanges in 2000. In this way Petro-China was forced to adopt modern enterprise structure and management systems, and was fast-tracked to international markets. In November 2007 Petro-China became the world’s most valuable company, with a market capitalization that topped $1 trillion, the first and only company in the world to do so.

At the time of restructuring in 1998, apart from Petro-China, CNPC had 1.06 million employees and 380,000 retirees, and a large number of subsidiary companies. Without the support of the core businesses, these remaining sections had a loss of 12.8 billion yuan in the first year. For the survival and development of these noncore businesses, CNPC took the following measures: Optimizing resource allocation and organization structure; further restructuring to separate main and servicing businesses; reforming personnel and other management systems; and pushing for the market orientation of businesses. These measures have seen the noncore businesses of CNPC smoothly transformed into a healthy growth mode.

According to Zhou Jiping (2004), the vice president of CNPC, the “Chinese oil industry benefited significantly from the oil science and technology with our own characteristics.” With the help of the “continental origin of oil theory,” China found large oil fields one after another. The application of the theory of large-scale non-homogenous sandstone development, production by layers, oil-stabilizing by water-cut controlling, as well as tertiary oil recovery had helped the

Daqing oilfield achieve an annual oil output of more than 50 million tons for more than 27 years, a miracle by world standards. Sophisticated technologies such as horizontal application, underbalanced drilling, slim hole, cased well, and multiple bottom and multiple branch drilling had also been actively applied. CNPC had close to 18,000 staff working in research and development (R&D) by the end of 2006, with an R&D expenditure of US$396.4 million.

With the rapid development of the Chinese economy and the sharp increase in energy demand, Chinese oil companies have been forced to go overseas since the late 1990s in search of a more diversified and secure energy supply. CPNC started its international operations in 1993 by signing a service contract to manage the Talara oilfield in Peru. In October 2005 CNPC completed acquisition of Petro-Kazakhstan with US$4.18 billion, despite the attempt by Lukoil to block the sale. It was the largest overseas acquisition by a Chinese company at the time. By 2006 CNPC owned oil and gas assets and interests in 26 countries outside China, forming five major operational regions including Africa, Central Asia, South America, the Middle East, and Asia Pacific. CNPC also provides oilfield services, engineering and construction in 49 countries and regions worldwide. Its engineering and technical services have been expanded to 38 countries, and the petroleum goods and equipment manufactured by CNPC have been exported to 61 countries.

However, CNPC also faces a number of problems and challenges, including a low profit margin (2.4 percent) compared to the industry standard, low technology content in operations, mature production facilities, internal welfare burden (a workforce four to five times larger than those of the super majors), small-scale international operations (lack of bargaining power with host institutions), and lack of presence in high-impact international explorations. It remains to be seen if CNPC can sustain its competitive advantages over the long term.

Bibliography:

China National Petroleum Corporation, www.cnpc.com.cn (cited March 2009);
Carvalho and A. Goldstein, “The ‘Making of ’ National Giants: Technology and Governments Shaping the International Expansion of Oil Companies from Brazil and China,” UNU-MERIT Working Papers (n.2008-021, 2008);
“Global Blueprint of Energetic CNPC,” China Oil & Gas (v.14/1, 2007);
Qiu, “CNPC: Creating a Super Enterprise Aircraft Through Reform,” China Post (n.6, 2006);
Roberts, “The Challenges Facing China’s Oil Behemoth Abroad,” BusinessWeek Online, www.businessweek.com (cited March 2009);
Yang and X. Guo, “The Making of the SOE Super Aircraft—An Investigation of the Reform and Development of CNPC,” Qiu Shi (n.18, 2003).

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