PetroChina is one of the globe’s foremost producers of crude oil and China’s largest company. Following its establishment in 1999, the oil giant has experienced a number of ‘ups’, but has yet to fully recover from its latest ‘down’.
The company recently came under the biggest corruption probe in China, which resulted in the reported imprisonment of four senior executives. PetroChina’s downstream equivalent, Sinopec, also came under investigation, as did the former chairman of PetroChina’s parent company China National Petroleum Corporation (CNPC), Jiang Jiemin.*
As of late, PetroChina has done particularly badly. Their profit margin has shrunk from 24% when Jiang Jiemin arrived in 2006, to just 8% after the chairman’s resignation in March 2013. According to Bloomberg, this year Sinopec has outperformed PetroChina’s sluggish output, doubling the amount of oil refined by the latter. Sinopec’s commendable 24% increase in net income is likely due to more advanced equipment and well-conducted cost control measures.
PetroChina on the other hand has experienced a loss of 7.8 billion yuan so far in 2013, a considerable amount, yet still a vast improvement from the 23.3 billion yuan loss in 2012. And as profits went down, spending went up: last year, capital spending shot up to 353 billion yuan, almost doubling the amount it was just five years ago.
Despite the probe into PetroChina and a number of related companies, trade resumed on 9 September with shares optimistically rising by 1.7% following a released statement, in which the company condemned the publicized reports as false and inaccurate. It was also announced that Vice President Sun Longde and Director Wang Guoliang were innocent of the accusations.
With the resumption of PetroChina’s activity, one can assume that the company has survived its corruption probe intact. The dip in profits and performance tie in closely with the dates of Jiang Jiemin’s arrival and departure as head of the company. Both factors lead to the question, if not corruption, is PetroChina’s recent nosedive simply due to bad management? What else could explain rising costs, falling yields and a lack of internal and technological development?
The larger the company, the greater the fall. This being one of the largest, the potential economic, political and industry repercussions are insurmountable. Therefore, an internal transformation in PetroChina is needed, urgently. Hopefully, the undesired spotlight and stark figures will culminate in an awakening to prevent the onset of its demise. Remaining to be tackled are a lack of transparency and a number of unanswered questions. Reportedly, expenditures are being reined in and greater capital discipline will be enforced. However, a scrupulous review and re-evaluation of PetroChina’s financial management and organisational structure is absolutely vital to restore the company to lasting and stable success.
* this article previously listed CNPC as Sinopec. The mistake has been corrected.
