China National Petroleum Corporation

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China National Petroleum Corporation

Peoples Republic of China
Telephone: (010) 6209 5129
Fax: (010) 6209 5126
Web site:

State-Owned Company
Employees: 1.5 million
Sales: RMB 403.83 billion ($48.79 billion) (2000)
NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 213111 Drilling Oil and Gas Wells; 22121 Natural Gas Distribution; 32411 Petroleum Refineries; 48611 Pipeline Transportation of Crude Oil

China National Petroleum Corporation (CNPC) is a ministry-level institution responsible for exploring and developing onshore oil and natural gas resources. It owns more than 20 oilfields and overseas onshore oil and natural gas reserves. The companys most precious domestic assets have been bundled into PetroChina Limited Co., which began trading shares on the Hong Kong and New York stock exchanges in April 2000. PetroChina is the worlds fourth largest publicly-listed oil company. CNPC accounts for two-thirds of Chinas petroleum and natural gas output. The central government has traditionally bought nearly half of its crude output at controlled prices for allocation to Sinopec, the national refining company. CNPC owns 25 small oilfield refineries itself. Apart from substantial holdings within China, the company is exploring or developing oilfields in the Americas, Africa, the Middle East, and elsewhere in Asia.


The origins of the China National Petroleum Corporation go back to the earliest days of Communist China. Chinas first oil joint venture was launched on March 27, 1950, by an agreement with the Soviet government to establish the Sino-Russian Petroleum Co. Ltd. in order to develop Xinjiangs Dushanzi Oil Mines.

On April 23, 1950, the Chinese government created the General Bureau of Petroleum Administration within the Ministry of Fuel Industry to oversee production and construction in the countrys petroleum industry. The Ministry of Petroleum Industry (MOPI) was created five years later.

An exploration well struck oil in the Karamay Oilfield in Xinjiangs Junggar Basin on October 29,1955. Several other productive oilfields were discovered in the next fifteen years, located in Qinghai, Heilongjiang Province, and Shandong Province.

A reorganization of the governments petroleum, coal, and chemistry sectors created the Ministry of Fuel and Chemistry Industries on June 22, 1970. In August of the same year, construction began on Chinas first long distance pipeline, running from Daqing to Fushun.

The Ministry of Fuel and Chemistry Industries was replaced with the Ministry of Petroleum and Chemistry Industries in January 1975. That June saw the construction of the Qinhuangdao to Beijing Oil Pipeline. Soon China would be a major world producer.

In March 1978, the Ministry of Petroleum Industry (MOPI) was restored, replacing the three-year-old Ministry of Petroleum and Chemical Industries. By the end of the year, the country would be producing 100 million tons of oil a year.

Before 1983, according to Haijiang Henry Wang, Chinas petroleum industry was in disarray. Its ownership was highly fragmented, divided among various corporations and government bodies. To consolidate the industry, two new companies were created in 1982 and 1983the China National Offshore Oil Corporation (CNOOC) and the China National Petrochemical Corporation (Sinopec). Sinopec had authority over most refining facilities, except for certain smaller ones based at oilfields. For its part, MOPI had been given new importance under the new national energy plan and announced the ambitious goal of achieving 3.0 million barrels per day by 1990 (the figure was actually attained five years later).

One key constraint was a lack of capital and technology. To overcome this, in the mid-1980s the Chinese government cleared the way for cooperative projects with foreign companies in the south of the country, areas that Chinas existing equipment had been unable to exploit effectively. The first such contract was signed on May 28, 1985 between the China National Oil Development Corporation and the Australian CSR Company. On September 17, 1988, the China National Petroleum Corporation was established to replace the Ministry of Petroleum Industry (MOPI).

Looking Abroad in the 1990s

A restructuring in early 1993 added two new joint-venture trading companies to the traditional international trading monopoly controlled by the China National Chemicals Import and Export Corporation (Sinochem). China National United Oil Corporation (called ChinaOil or SinOil) paired Sinochem and CNPC to export crude oil. The China International United Petroleum and Chemicals Corporation (Unipec) was a joint venture between Sinochem and Sinopec, Chinas national refining company, to market refined products.

Wang Tao, the chairman of CNPC at the time, planned to use the extra profits from the new export joint venture to fund new domestic refineries as well as more exploration and development abroad through the China National Development Company, which had been established in 1981 but was under-funded.

In the early 1990s, CNPC was producing 140 million tons of crude a year from its domestic wells. With the Chinese economy the fastest growing in the world, the company set off on a global search for oil. CNPC became the first Chinese company to acquire overseas oilfield development rights in 1993. On March 5, the company obtained operational rights in Thailand. On July 15, the company obtained rights to part of the North Twing Oilfield in Alberta, Canada. Rights at the nearby Tarara Oilfield were obtained in October. CNPCsoon ventured into Latin America in partnership with Petroleos del Peru. Sites in Papua New Guinea were also being explored.

The liberalization of trade in China was accompanied by an economic boom. This reduced the amount of petroleum products available for export. In 1990, the price of crude oil was regulated between 174 and 500 yuan per ton, the equivalent of $5 and $14 per barrel, given an official exchange rate of 4.78 yuan per dollar. In 1995, the exchange rate had gone to 8.31 yuan per dollar, and the price of crude was between 700 and 1200 yuan per ton, or about $11.50 and $19.70 per barrel.

A recalculation of crude oil prices by the Chinese government in 1994 allowed CNPC to show a profit for the first time in several years. However, the company remained concerned about its future due to increasing exploration and development costs.

According to the China Petroleum Information Institute, CNPC was operating a total of 9,479 wells in 1995, about ten percent of them exploratory wells. Daqing, Chinas largest oilfield, accounted for 2,851 of the total.

The company obtained rights to the Muglad Basin in September 1995 and March 1997. After a round of competitive bidding, two oilfields in Venezuela were added to the list in July 1997. This deal was worth $358 million.

In October 1997, CNPC acquired a 60 percent holding in the Aktyubinsk Oil Company, gaining access to oilfields in western Kazakhstan. CNPC paid $325 million for its shares and agreed to invest another $4 billion over 20 years, mostly to build a proposed pipeline to China. It outbid a consortium led by U.S. oil group Amoco. During 1997, CNPC also secured a $1.3 billion contract to develop Iraqs Al Ahdab oilfield upon the lifting of United Nations sanctions.

CNPC accounted for 89 percent of Chinas crude oil production in 1996. The China National Offshore Oil Corporation (CNOOC) accounted for another ten percent, while the Ministry of Geology and Mineral Resources (MGMR), local governments, and joint ventures between CNOOC and foreign companies shared the remaining 1 percent.

The China National Star Petroleum Corporation (CNSPC) was created in 1997 to develop both onshore and offshore oil and, particularly, natural gas resources on a commercial basis, through partnerships with foreign companies. It gave the existing state-owned oil companies a new competitor and was formed due to a lack of progress in staving off an impending oil shortage.

1998 Restructuring

CNPC was created as an upstream conglomerate but had plans to expand its downstream (refining) sector by 2000 by forming integrated refining-petrochemical centers in Karamay, Dushanzi, Daqing, Zhongyuan, and Bohai Bay. In a 1998 restructuring of the national oil industry, CNPC acquired 19 companies from the China Petrochemical Corporation (Sinopec), including several refineries, while Sinopec acquired 12 of CNPCs companies, including several oilfields. After the swap, CNPC and Sinopec became known as Northern and Southern companies, respectively, due to the location of their assets, which in CNPCs case totaled $57.2 billion. CNPC accounted for two-thirds of both Chinas petroleum and its natural gas output.

In January 1999, CNPC merged 10 pipeline enterprises into its China Oil and Gas Pipeline Bureau subsidiary, which was also given authority over four engineering construction companies, two research and design centers, a personnel training center, and a hospital. This gave the bureau assets of 23 billion yuan ($2.77 billion), including 13 oil or gas pipelines.

Company Perspectives:

CNPC, bred in the ever changing and developing petroleum industry in China, continues on its splendid course and carries on the high morale and spiritual values of painstaking efforts necessary in pioneering enterprises. Its great teamwork, high sense of social responsibility, and unceasing striving to improve make CNPC ready to face any challenge in the coming century.

CNPC completed its first long-distance crude pipeline built overseas at the end of May 1999. It linked the Muglad oilfield to Port Sudan over a distance of 1.05 kilometers. By this time, China was importing 20 percent of the oil it used. This figure was projected to increase to 40 percent by 2010. The countrys oilfields in the north and northeast were maturing, noted Britains Financial Times, and its more recently discovered fields in the west had proved disappointing, both in terms of yields and in the cost of shipping the oil to the east coast economic centers.

By June 1999, CNPC had begun to restructure subsidiaries and trim jobs in preparations for a partial flotation. China Daily noted the company was plagued with an unnecessarily large number of employees, duplicated construction, high costs, and heavy debts, all a relic of the centralized planning regime. The companys offshore oil exploration counterpart, CNOOC, was also planning an IPO but canceled it in October. That did not dissuade CNPC management from pursuing their own flotation.

In November 1999, CNPC announced the establishment of a new limited liability company, China National Petroleum Co., Ltd. (China Petroleum or PetroChina), engaged in a variety of upstream and downstream activities. A few subsidiaries, already listed on the Hong Kong or mainstream China stock markets, were transferred to China Petroleum, with the exception of China (Hong Kong) Oil Co., Ltd., which retained its position in the stock market. PetroChina was thus endowed with CNPCs most valuable assets. It would have 480,000 employees, while CNPC would retain the bulk of the other one million, most of whom were likely to be laid off.

CNPCs net profits for 1999 were about 17 billion yuan ($2 billion), more than two and a half times greater than the previous years. Sales income was about 330 billion yuan ($39.8 billion). The company pumped 107 million tons of crude oil and 16 billion cubic meters of natural gas during the year. A government crackdown on refined oil smuggling and CNPCs own restructuring efforts were credited with the positive results.

An IPO in 2000

Before its planned flotation on the Hong Kong and New York stock markets, PetroChina based the compensation of its top managers on performance, making it one of the first Chinese companies to adopt such a Western-styled incentive system. In spite of this, the PetroChina initial public offering (IPO) was disappointing.

CNPC had planned to raise $7 billion in what would have been Chinas largest IPO to date. However, the company only took in HK$22.5 billion ($2.9 billion) from the offering, even after the Chinese government pressured its mainland enterprises listed in Hong Kong to buy shares in the issue. One big subscriber was the British oil giant BP Amoco PLC, which agreed to invest up to $1 billion for a 20 percent holding. Several U.S. pension funds boycotted the issue due to alleged human rights abuses and terrorist connections in Sudan, where CNPC was participating in a joint venture (PetroChina itself had no overseas assets), as well as environmental damage in Tibet. PetroChina shares fell markedly after listing on the New York and Hong Kong exchanges in early April 2000.

Principal Subsidiaries

Aktyubin Oil Company (Kazakhstan; 60.3%); China National Petroleum (PetroChina) Co., Ltd. (90%); China National United Oil Corporation (50%); China (Hong Kong) Oil Co., Ltd.; China Petroleum International Engineering Company; PetroChina Company Limited (90%).

Principal Competitors

China National Chemicals Import and Export Corporation (Sinochem); China National Offshore Oil Corporation (CNOOC); China National Star Petroleum Corporation (CNSPC); China Petrochemical Corporation (Sinopec); Petroliam Nasional Berhad.

Key Dates:

CNPC is established, replacing the Ministry of Petroleum Industry.
CNPC begins exporting oil and developing overseas oilfields.
The companys main operating subsidiary, PetroChina, lists on the Hong Kong and New York stock exchanges.

Further Reading

China Petroleum Industry, 1995, China Petroleum Information Institute, 1996.

CNPC Merges Pipeline Enterprises, China Daily, January 25, 1999.

CNPC Regrouping, China Chemical Reporter, November 29, 1999.

CNPC to Strengthen Exploration for Oil, Gas, China Business Information Network (CBNet), January 25, 1999.

CNPC Ventures Need More Funds, China Daily, August 2, 1999, p. 5.

Corzine, Robert, From Minor to Major: Formerly Monolithic State Oil Companies Are at Last Challenging the Western Majors on Their Home Turf, Financial Times, August 19, 1997, p. 13.

,The Lure of the East: China, a Vast Potential Market for Kazakh Oil, Financial Times, July 23, 1997, p. 4.

Gesteland, Lester J., PetroChina Falls in New York, Hong Kong, China Online, April 10, 2000.

Harding, James, Chinese Oil Giant Finalises Plan to Raise Up to $10 Billion, Financial Times, June 29, 1999, p. 1.

Ho Swee Lin, China Oil Company to Revive Withdrawn Offering, Financial Times, November 26, 1999, p. 15.

, Chinese Issue Disappoints, Financial Times, March 31, 2000, p. 30.

, Investors to Tread Warily in China Oilfields, Financial Times, December 23, 1999, p. 8.

, Western Wiles to Woo the Market, Financial Times, March 14, 2000, p. 18.

Kynge, James,China Anxious to Ensure That Oil Supplies Are More Secure, Financial Times, May 6, 1999, p. 6.

Landler, Mark, Chinas No. 2 Oil Company Prepares to Go Public, New York Times, October 12, 2000, p. W1.

, Stakes in China Suddenly Seem Less Appealing, New York Times, March 31, 2000, p. C1.

Ling Zhuang, Joys and Worries in Operations of CNPC and Sinopec, China Chemical Reporter, October 6, 1998.

McMahon, William J., PetroChinas Roadshow Kicks Off as Detractors Drill Its Prospects, China Online, March 28, 2000.

National Petroleum Corp. Signs Up for Oil Exploration in Three Continents, South China Morning Post, November 22, 1993, p. 2.

Oil Giant Rakes in Big Bucks, China Daily, December 29, 1999, p. 1.

Sinopec, CNPC Reduce Gas Prices, Begin Market Competition in Shanghai, China Online, August 15, 2001.

Slick Maneuvers: Chinas Petroleum Shake-Up Dashes Competition Hopes, Far Eastern Economic Review, July 2, 1998, p. 61.

Slick Move by Petroleum Firm Creates Oil Giant, China Daily, November 9, 1999, p. 5.

Walker, Tony, China Creates Third State Oil Company; New Operation to Commercialise Oil Bureaux and Research Institutes in Attempt to Revive Sector, Financial Times, January 27,1997, p. 4.

, Survey of China, Financial Times, November 18, 1993.

Wang, Haijiang Henry, Chinas Oil Industry & Market, New York: Elsevier, 1999.

Yuan, Sy, Yi-kun Chen, and Ann M. Weeks, An Update on Chinas Oil Sector Overhaul, China Business Review, March/April 2000.

Frederick C. Ingram

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