How many years have you worked in the oil industry?
I graduated from the Petroleum Institute here in China in 1972. Since then I have worked in the oil industry. I have worked with foreign companies since 1983. My background was as a geologist but then I moved into planning and production. This was at the time when China determined it needed to attract foreign investment in the late 1970s. It wanted to attract foreign oil companies, and we started joint ventures in 1983.
You have had these relationships with foreign oil companies since 1983. What difference does that make to CNOOC’s corporate culture compared to Sinopec or PetroChina?
This is one of the unique things about our company. We formed a unique culture, and knew from the start that we must make money. We learned from the foreign oil companies that if you wanted to get investment you need to think in terms of international business practice. This meant that all our investments were based on commercial decisions, and we had to be efficient in our use of capital, and with the number of employees. We are a small-sized organization. If we were to extrapolate our assets and have the same organization as one of the national oil companies we would have 200,000 employees. But we have only 20,000 – including the parent. For the listed company it is just 1,000, and this makes the company unique.
So CNOOC has always understood the concept of profit?
Indeed.
And from 1983 you have always made a profit?
Yes. When we were established the government refused to finance any exploration or production. All the financing was from commercial foreign investors. So we had to make all of our investment decisions and ensure we had economic returns. We have made money every year. The worst performance we experienced was in 1998 when the oil price hit its low, and we were still making a profit of $187 million. Last year we had a good year, not just because of the higher oil price but because we had a very good control of costs.
Do all of the senior management speak English as well as you do?
All of the senior management speak English – some more fluent, some less. Our management team has experience of working with the international oil companies. For example, I have worked with Amoco and Texaco.
People of your seniority in Chinese companies would normally not be so comfortable answering questions in English – normally a translator would be essential.
We have a lot of people working with the international oil companies whose daily communication language is English. This is quite unique and we consider this an advantage.
What are the lessons you learned from 1999 when you first tried to list CNOOC?
The major cause for the 1999 failure to list was the extreme adverse market condition. In September 1999 when we were on the roadshow the oil price dropped from $25 a barrel to $21. By the time we announced the pricing the Dow Jones had dropped 600 points in one week. Also, we did not react quickly to the market, and give out the right information, and inform investors about the key areas of the company. We have done a lot better this year. Early last year we got some new shareholders, including AIG, GIC and the most influential Asian companies such as the Cheung Kong group, Hutchison and Hongkong Electric. And even though we did not list, we ran the company according to SEC requirements and periodically released information about the performance, and the finance figures. We had regular meetings with shareholders and potential investors. Most importantly we either delivered or over-delivered on what we promised.
So you think that thanks to the failure of the first listing attempt, your investor relations has benefited?
Yes, as we did not have a team dedicated to investor relations and were short of experience of how to deal with investors. Now we have a group that does this. And we have a program to send them to international oil companies who have been recognized by the market for good investor relations.
Is it correct that CNOOC will not need to be restructured going forward? Unlike the other Chinese oil companies you don’t have excess staff?
No. Actually, if you look at the total size of the parent company it is 20,000. This is not a restructuring story. And for the listed company there is only around 1000 employees. The parent is making money and has a strong financial position. It has zero debt. Till the end of last year the parent had $1.5 billion in cash. That’s why the parent company will not depend on the listed company for its future growth. Our dividend policy will follow international practice.
You have a return on capital of about 21%. Is that the highest of any company in China?
In fact that is true.
How important is China going to be to the world oil industry in the next 20 years?
If you look at the demand supply side you will see that China will become the world’s first or second biggest oil consumer. But on our supply side, we are lagging demand, and based around the government plan for GDP growth for the next 10 years of 7%, the requirement for energy growth is incrementally 6% annually. At the moment China can only provide 2%-3% of that 6%, so there is a large gap. This gives us a unique opportunity for growth in our industry. Our assets are all offshore and close to the high growth areas of coastal China.
You will supply China’s needs via new discoveries in China’s offshore oil fields?
Yes.
Do you plan to explore elsewhere apart from in China’s waters?
We are planning to explore for natural gas in China’s offshore waters. Gas will become a major source of demand in China, when the pollution issue arises, as it is a clean energy. In terms of oil we have a lot of reserves already. We need to accelerate the development of fields.
What is your view of the long term trend of oil prices?
Everyone in the oil industry has made predictions and forecasts. And I believe nobody was right. The same will be true in the future. For the time being, it is not appropriate for me to make a prediction, but I would like to refer to the recent OPEC meeting. OPEC said it hoped the future price would be between $22-28 a barrel.
You believe that is a healthy price?
Yes, it is healthy for the world economy. If the price is too high it is not good for the economy, and if it is too low it is bad for the oil industry. So this is the best range for both.
