CNOOC: building a world-class energy company

Introduction

1.company history

1982-1991: opening up

On February 15, 1982, CNOOC was set up with $3.2 billion of registered capital. Qin Wencai was appointed as CNOOC’s first president.The company has exclusive rights in cooperation with foreign parents and can enjoy a free pricing mechanism which is different with 90% commodities in China that had their price regulated. And in 1982, CNOOC established the Nanhai East and Donghai subsidiaries. CNOOC seized opportunity to provide contracting services to its foreign partners, while accumulating capital and experience for independent exploration.

By 1991, CNOOC had gross production of 2.42 million tons and total assets of $1.8 billion. 1992-1999: a two-pronged approach In 1993, CNOOC laid out a road map for reform: concentration of the E&P business, relative independence of the technical services companies, and gradual separation of the general services group. It formed a new E&P company, CNOOC Limited.From 1994 to 1996, it also restructured to create 10 technical service subsidiaries. In 1999, its gross production and total assets increased to 20.6 million tons and $5 billion, respectively.

2001-2004: restructuring and public listing With foreign investment decreasing,CNOOC started to explore the capital market to fund its growth. In 2001, CNOOC limited and the E&P  arm successfully listed on New York Stock Exchange and Hong Kong stock exchange. It raised $1.9 billion and subsequently made three overseas acquisitions. CNOOC continued to restructure production service and logistic functions and set up 10 service companies.

CNOOC adhered to three principles: upgrade all state-owned assets, develop all employees, and build the overall competitiveness of the group. In 2004, CNOOC articulated the goal to build a globally competitive energy company by 2008 and specified four strategies: synergistic development,technology-driven growth,development of a world-class workforce, and cost-competitiveness.

2005-2009: takeoff CNOOC continued its restructuring, overseas expansion,and its ventures into midstream and downstream business during this phase.It changed its acquisition strategy which is form a joint venture with local partners to create cooperation rather than a takeover.It further downsized the social service and unprofitable business and strengthened the core technical services in 11 companies that focused on five main sectors--energy transportation;maintenance and technical service;energy comprehensive service;products;and environmental production.

In 2009,its revenue,net profit,and total assets reached $2.9billion,$205 million, and 28.6 billion,respectively.

Problems

There are many problems occurring during CNOOC’s development.

1.political barriers.

CNOOC’s overseas expansion posed challenges.For example,in 2005,it encountered political barriers when attempting to acquire California-based Unocal.Politicians in Washington think that CNOOC--a state-owned oil company is acting as a proxy for Chinese government and seeking to secure strategically valuable their energy assets.

After the Unocal event,CNOOC changed its acquisition strategy to cooperate with others to acquire overseas assets instead of acquiring big companies.That means it is to form a joint venture with local partners to create cooperation rather than a takeover.Joint venture helped CNOOC get around political barriers and leverage the partner company’s local resources and contacts.It was also less costly and less risky than acquisitions.However, joint venture also leads to losing own features and integration.

For technical service companies,would acquisitions or joint ventures be a good way to upgrade their technological and global competitiveness?

2.Difficulties in integration.

When CNOOC acquired a foreign company,it’s challenging for integration.In 2008,CNOOC acquired the Norwegian offshore drilling company Awilco for $2.5 billion.But it encountered great difficulties in integrating Awilco.

The first is culture.As China is still a developing country, conflicts naturally rise when CNOOC manage Awilco which is from a more developed country.They could not accept the fact that the company was acquired by a Chinese company and do not believe they can manege Awilco well.As their national cultures are different, their

logical reasoning is different.And while it was normal for the Chinese employees to work overtime,the Norwegian staff did not have to do so. 3.high rate of foreign executive laid-off Since the values are different, some talent recruited from outside the company did not fit well with its culture.But wo know that human resources are the most important resources of a company.Once CNOOC recruited 6 foreign executives but only one stayed after 3 years because of family or other reasons.And non-Chinese staff were paid international rates which sometimes caused friction with Chinese managers.

The real issue s were values and management style were different.So, there are some problems in the balance between the pace of company’s globalization and the number of global employees they should develop or recruit and the professional structure and competency requirement of global staff.How should CNOOC motivate and retain these nem employees,who might not share the same values as staff who had grown up within the company?

4.diverse subsidiaries CNOOC has 4 major subsidiaries and the have its own subsidiaries.It’s challenging on integration due to diverse subsidiaries which all aim at going globally.Leaders of some subsidiaries in the midstream and downstream business that operated in China did not see the need to develop global perspectives and global management competencies.

So how should it develop the next generation of leaders at the group and subsidiary levels who shared the group’s coe values,and who maintained global perspectives and professional management capabilities to build CNOOC companies into a world-class energy group? Finally,with an increasingly younger and diversified workforce,how could CNOOC ensure that its leaders would act as role models so that CNOOC’s core values would not be diluted during periods of fast growth?