CNOOC: The strong Lift up the Weak     

    CNOOC Ltd. (HK: 0883, NYSE:CEO), China Oilfield Services Limited (SH: 601818, HK: 2883), CNOOC Offshore Oil Engineering Co., Ltd. (SH: 600583) and China BlueChemical Ltd. (HK: 3983) have formed a strong consortium called CNOOC (China National Offshore Oil Corporation) in the capital market.

Advantage from cooperation

In these four listed companies, the core business of the first three companies is exploration, development and production of oil/gas resources in offshore waters of China. They offer comprehensive and integrated oilfield services including well-drilling services, oil well technology services, ship services and physical reconnaissance services and undertake operations such as offshore engineering design, construction, installation, debugging and maintenance. China BlueChemical Ltd. is mainly engaged in the production, development and sales of urea and chemical products with high added value, using natural gas as a raw material.
   The most outstanding feature of CNOOC is to list high-quality assets in the stock market and while rapidly developing high-quality assets enable the value of assets without high quality to increase. CNOOC Ltd. has strong competitive edge and can provide more business opportunities to China Oilfield Services Limited, CNOOC Offshore Oil Engineering Co., Ltd. and CNOOC Oil Base Group through huge investments and therefore reactivate these companies.
   On the other hand, without China Oilfield Services Limited, CNOOC Offshore Oil Engineering Co., Ltd. and CNOOC Oil Base Group, CNOOC Ltd. would have lower efficiency and higher cost and could not stay in business very long. Comprehensive advantage has been generated from the cooperation of several companies under CNOOC.
   In the global energy industry, an oil company engaged in oil production usually has 30-40 companies to offer services and there is a detailed division of work. CNOOC has changed this mode and exclusively asked China Oilfield Services Limited to provide comprehensive services. China Oilfield Services Limited then contracts out jobs it cannot do itself. To CNOOC Ltd., the cost of signing a contract with a single contractor is much less than the cost of signing 30 contracts with 30 different contractors. This mode is of course highly acclaimed by CNOOC Ltd.

Reformation for listing

Before listing on the stock market, CNOOC as an oil company was large and earned a good profit. Operations in China Oilfield Services Limited, CNOOC Offshore Oil Engineering Co., Ltd. and CNOOC Oil Base Group were not very satisfactory. As service companies, however, they had most of CNOOC's employees.
   When CNOOC Ltd. with strong competitive advantage got listed, it took out 80% of CNOOC's assets but only 3% of employees in CNOOC. "Many employees could not understand it," said the general manager of CNOOC, "They thought that the assets built up by strenuous efforts for many years were seized by 3% of employees."
   It was however the first step in the strategy of "the strong lifting up the weak" formulated by CNOOC. Companies that once faced great difficulties in operation have fully tapped their advantages through institutional reform and reformation for listing. Through reformation, China Oilfield Services Limited and CNOOC Offshore Oil Engineering Co., Ltd. which are both listed in Hong Kong and mainland China hold 12% of the total assets and have 37% of CNOOC's total employees.
   After several reforms, around 8% of total assets and around 60% of total employees that remain in CNOOC were formed into CNOOC Oil Base Group. The company offers comprehensive and systematic supports and services of technology, equipment, human resources, physical distribution, communication and logistics for offshore oil exploration, development, production and sales, oil/gas processing, petrochemical production and LNG (liquefied natural gas) operation. The profit-earning in CNOOC Oil Base Group was very undesirable in the past. Through large-scale reformation, the company has 10 specialized subsidiaries today. The total profit of the company reached RMB610 million in 2006, an increase of 63% over 2005.
   According to the general manager of CNOOC, CNOOC Oil Base Group plans to get listed in 2008. The remaining assets of CNOOC at that time will only be those of projects that will soon start production such as refining, chemical production and natural gas power generation projects. Listed companies can get these assets at any time if they have a need or their development would be slowed down. In this way not only are the assets of CNOOC activated, its comprehensive competitive edge is also greatly enhanced.