China National Offshore Oil Corporation comes to Kazakhstan
Mr. Zhou Hongbo, General Director of China National Offshore Oil Corporation Representative Office in Kazakhstan and the Caspian Region answers questions from the our magazine.
As we are aware, your company did not participate in projects in Kazakhstan. Therefore, can you please introduce CNOOC to our readers?
The company that I represent here is CNOOC, which stands for China National Offshore Oil Corporation. We are one of the three largest oil companies in China. The headquarters of the company are located in Beijing and we have a number of large regional offices and operational bases along the coastal area of China. Presently, the total number of company employees is around 24,000.
Talking about the history of the company, it was founded in 1982 at the time when China started carrying out the policy of reforms and opened the country to outside world and foreign investors. Based on the Regulation of the Chinese Government for Exploitation and Export of Offshore Petroleum Resources, CNOOC was authorized to conduct exploration and production of hydrocarbon resources at the Chinese shelf in cooperation with foreign enterprises. With a little more than 22 years of experience, CNOOC is a relatively young but fast growing company, compared to other petroleum companies.
Can you please tell us about the main milestones of CNOOC?
Up to the early 1980’s all petroleum industry activities in China were primarily concentrated onshore. We very mu?h lacked the technology, financial investment capability and management skill to develop offshore petroleum resources at that time. Therefore, attracting foreign investments and cooperating with international oil companies has become the choice of state policy. Thanks to this CNOOC was engaged in the development of the Chinese offshore oil industry and started its process of expansion.
The company has passed several major development stages. Initially, during the first ten years of its development, we mainly cooperated with foreign companies on the basis of the Production Sharing Agreement (PSA) model, i.e. in practice foreign companies acted as operators of offshore projects. During this first stage, CNOOC accumulated its own capabilities through implementing large-scale training programs for its national employees. The training was exercised both abroad and in China with the direct participation of foreign operators. Besides, we had acquired management skills and experiences through JVs to provide various services like drilling, geophysical surveying, marine shipping, logging and other services to support offshore operations.
Apart from PSA projects, we initiated our own “self-financed exploration and development program”. This was the second stage of our development.
At the beginning of the 21st century, CNOOC entered into its third development stage. We re-organized our business based on its own nature and put our E&P and service subsidiaries onto the international stock market in order to introduce the modern production system into the company. Presently, three CNOOC companies are publicly listed on international and domestic stock markets. For example, CNOOC Limited, which was engaged in offshore exploration, development, and production and the sale of oil and gas, was listed on the New York Stock Exchange (NYSE) and the Hong Kong Stock Exchange (HKSE), while our offshore oil service company COSL was listed on the Hong Kong Stock Exchange. Now we can work under market mechanisms and compete equally in the international market place.
What are the basic directions of your activity and economic indicators presently? In what international projects is CNOOC involved?
In 2003, oil and gas production offshore of China reached 33.36 million tonnes of oil equivalent. The net profit of CNOOC for the same period was approximately 15 billion RMB yuan (or $1.8 billion) and the total asset value of the company reached 120 billion RMB yuan ($14.6 billion). International Moody’s Investors Service granted CNOOC an A2 credit rating, which is equal to the sovereign rating of our country.
CNOOC adheres to “WIN-WIN” business principles meaning that both sides in business relations shall win. Successful implementation of this principle and steady state policy enable CNOOC to establish a favorable relationship with international oil companies including ENI, Statoil, ConocoPhillips, BP, ChevronTexaco, Shell, etc.
Currently CNOOC is in the new development stage. Our strategic objective is to become not only an E&P but also a vertically integrated energy company. Presently, CNOOC works on a number of large mid-downstream projects including the LNG terminal, petrochemical and refinery plants.
In regards to the international investment activity of CNOOC, our company is highly interested in increasing its oil and gas investment activities outside China. Presently, the most successful international projects are in South East Asia and in Indonesia and Australia, where we have built up a long-term gas supply and demand relationship between the countries.
How do you evaluate the future prospects of cooperation between Kazakhstan and China in the oil and gas area? What are the strong sides of Chinese companies?
It is obvious that the potential opportunities for cooperation between Kazakhstan and China are tremendous. On the one side in the oil and gas sector, Kazakhstan is currently emerging as a major oil producing and exporting country in the Caspian region, and it has large reserves waiting to be explored and developed. On the other side, we witness the rapid growth of the Chinese economy that creates a great demand in the energy market. Such supply and demand offers huge business opportunities to oil and other companies, including Kazakh, Chinese and international ones, which have the required investments, technology and management skills to link them together. Wealth and prosperity then can be generated along with good business relationships and bring benefit to all the parties.
Currently Kazakhstan and China enjoy a very good relationship. Governments of both countries provide strong support to promote business cooperation between Kazakhstani and Chinese companies. The commitment from both sides to construction of the West Kazakhstan – China pipeline is a good example.
The strong sides of the Chinese companies are, first of all, their extensive experience and knowledge in dealing with complicated geology and field development in China. Chinese companies can offer a better solution to increase the ultimate recovery of the underground reserves that will help to maximize the value of Kazakhstan resources. Second, Chinese companies can have relatively low operating costs, which is important for competing in the market place. And third, we can build a direct link and network to the demanding market.
There are also weaker sides of the Chinese companies: that they need to enhance and better understand the local requirements and the investment environment. Therefore, increasing mutual understanding is crucial.
What are the strategic interests of CNOOC in Kazakhstan and other Caspian states?
As I mentioned earlier, CNOOC is interested in expanding its international business. The Caspian region and Kazakhstan in particular are priority areas to us. That is why we have set up representative offices here.
Since we are at the very beginning of our activity in Kazakhstan, we have three main objectives. The first is to establish good contacts and relations with the Government of the Republic of Kazakhstan, Kazakhstan national oil companies, and other international oil companies here. The second is to participate in Kazakhstan’s development process by looking for investment opportunities and increasing our business in the region, and third is contributing to the development of your country by sharing our offshore experience, taking into account that the current situation in the Kazakhstani Caspian sector is quite similar to China offshore in the early 1980’s. Therefore, I hope that CNOOC’s experience and capabilities in the development of offshore oil and gas deposits will be helpful to Kazakhstan.
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