Cnooc Case Study

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CNOOC: BUILDING A WORLD-CLASS ENERGY COMPANY
CASE ANALYSIS
By

Becoming a world-class energy company does have its privileges and requires a significant amount of commitment from a thriving leadership team. Fu Chengyu, the President of China National Offshore Oil Corporation joined the company over 30 years ago at its inception. He shared his vision of having a world -class energy company, by improving value creation capability, low-carbon competiveness, and sustainability. After Fu Chengyu was appointed President in 2003, the company experienced what some people would say “supernatural success”. The company developed from a domestic market to more than 20 countries and regions overseas, causing tremendous growth in revenues. By 2009, with revenues of 30.7 billion U.S dollars, the gross production increased by more than 500 times. (Bower, Dai, Shih Ta Chen 2012).

Rather than becoming complacent, Mr. Fu had an even greater vision and wanted to discuss some key issues that would influence the next phase of development. Having already accomplished a great percentage of revenue from overseas markets, he also wanted to build a modern energy portfolio by not only stepping up the deepwater exploration of oil and gas resources, but also developing clean and low carbon energies. Expansion into the overseas market brought forth new issues and challenges. Since resource-rich countries had such strong hold on their natural assets, he questioned if they should rely more on joint ventures than on acquisitions to achieve overseas assets. (Bower, Dai, Shih Ta Chen 2012). He wanted to know how could CNOOC maintain it’s global vision, stay competitive and rely less on their sister company CNOOC Limited.

Energy Industry and the China Market: Problems the CNOOC Faces As it Goes Global
Due to economic growth and development, global investment in renewable energy increased from $20 billion in 2004 to 120 billion in 2008. Throughout the substantial economic growth, China’s energy consumption skyrocketed as well. While coal remained the dominant energy source, it’s primary energy consumption increased from 416 million tons of oil in 1978 to 2,026 million tons of oil in 2008. China made an increased effort to have a more energy efficient economy but faced many challenges during the restructuring phase of the company. Major Chinese energy companies were all state owned enterprises under the jurisdiction of the State-owned Assets Supervision and Administration Commission of the State Council eventually evolving from an independent company, into an integrated energy company. Offshore petroleum exploration was one of the first sectors opened to the outside world but now CNOOC has established six business sectors ranging from exploration and development of oil and gas, technical services, logistic services, chemicals and fertilizer production, natural gas and power generation to financial services. In the nineties, while CNOOC still made an effort to increase independent exploration and continue international cooperation, gross production increased but they had to cut back on employees. In an effort to maintain a lean, yet efficient workforce, Fu Chengyu became more concerned with quality vs. quantity. During this time, CNOOC segmented its businesses into three sectors; E&P business, technical services, and gradual separation of the general services group. A lot of restructuring had to take place in order to develop core services to support the E&P business. Social services, police stations, etc, were all being transferred to the government and hospitals were downsized. The employees of CNOOC had the option to stay with the company during the restructuring phase.

Important Company Milestones
In 2004, the 10 service companies and 5 regional companies were brought under the newly established CNOOC Oil Base Group Limited. One of Mr. Fu’s main objectives while CNOOC went global was to stay...
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