China corporate governance report: CNOOC interview

Euromoney: You are listed in Hong Kong and New York. When you look at the different regulatory standards, what have you had to do to meet those requirements, and has it been good for the company’s image with investors to be listed on those exchanges?

Fu: You have to pay this cost if you want to keep a good image for the public. In each market the regulators have different requirements: sometimes they have big differences which means you are doubling your efforts. But this is part of the costs you have to incur.

For some areas, like the New York stock market, I believe they are really reducing their competitiveness, and they are competing with other markets. We have seen some changes from the NYSE, they want to reduce the burden for the listcos. This is good, but as the CEO of a company even if the burdens are released you have to remind yourself that you must keep high criteria for yourself.

Euromoney: On which exchange are your shares most widely held?

Fu: Hong Kong is our main board. New York, through the ADR, is about 10 to 15%.

Euromoney: The CNOOC family has a number of listed entities, such as China BlueChemicals and China Oilfield Services. How do their approaches and structures fit in?

Fu: For those family members who were listed in the past, they have similar governance standards to CNOOC Ltd. There is not much difference and we use the same criteria. This is good, because in Asia there is a very common phenomenon of related transactions. The transactions are not the problem, the problem is transparency. In CNOOC each board makes decisions, not the parent group.

We also have unique advantages: for example we have an oil company and a sales company, and although they are run by different boards they will help each other. They run their businesses by market rules, but will provide more efficient work than their competitors. For example in the oil industry you are paid by day rates, so service contractors want to make jobs last for longer to make more money. In our system, you have no such thing.

CNOOC is a unique company in that most of our business is offshore. Offshore, the major challenge is cost, and risk is higher. So how do you overcome your disadvantages? One, technology, and two, management efficiency. With our midsize field developments it takes no more than three years from first discovery to first oil. Our competitors will take at least one or two years longer. This is efficiency: our service contractors will not try to delay our work. There is a long term strategic alliance: I give the market to you, you give me a discount and efficient work.

Euromoney: You mention related party transactions, and people do talk about this where there is an unlisted parent and a listed entity. Because your parent now publishes an annual report, does that mean greater transparency on related transactions between the parent and the subsidiary?

Fu: The parent company is using the listed rules for the whole company, listed and unlisted. It requires transparency, the same accounting rules, so you can easily compare each part of the company. So when you read any one thing in the company you can question the whole group. When you see the annual report of the whole group you can see everything, and each part’s performance.

Euromoney: Upstream energy is a potentially risky business for employees. What’s your approach to employee safety?

Our safety criteria, from the first day the company was established, was using the same criteria as other international oil companies. Our first priority is that we provide a safe working environment for our employees. We require them to understand the business – the nature of the business, the safety of the business. Before working, we ask employees to think of five things, and if any of them is not available they should not work. They include this knowledge part; whether they can hurt themselves, or somebody else; if they have the right tools; things like that. When we go overseas, we use the same criteria. Actually we have very few Chinese working overseas, we use local employees because they better understand the local environment. When we acquired an Indonesian asset from Repsol in 2002, they had around 800 local employees, 1,000 contractors, and for the first two years we had only three Chinese working there. Even today we have only around 17, compared to 3,000 locals.

This article was one of several chapters in a detailed guide to corporate governance in China published with the June 2009 edition of Euromoney