CNPC Acknowledges Graft Challenge as 2013 Output Hits Record

Jan 16, 2014 10:34 pm ET

(Updates with comment from analyst in fifth paragraph.)

Jan. 17 (Bloomberg) -- China National Petroleum Corp., the nation’s largest energy producer, acknowledged it “faced some serious challenges” last year from a government graft probe, even as it boosted output to a record.

Oil and gas production in 2013 exceeded 300 million metric tons for the first time, the state-owned, Beijing-based company said in a statement on its website today. Overseas production was a record 123 million tons, it said.

“CNPC faced some serious challenges last year, especially after some senior officials were investigated in August,” Chairman Zhou Jiping said in the statement. “Through hard work, we submitted a satisfactory result to the party and the people.”

CNPC has drawn scrutiny amid a government corruption probe that’s snared some senior managers, including high-ranking officials at its listed units PetroChina Co. and Kunlun Energy Co. China’s leaders have widened a crackdown on graft, which President Xi Jinping has said threatens the communist party’s grip on power.

“CNPC did a decent job in terms of maintaining stable production growth amid the government corruption probe,” said Shi Yan, an analyst with UOB-Kay Hian Ltd in Shanghai. “CNPC and PetroChina have aggressively acquired overseas assets in the past few years, and it seems now the strategy is paying off and overseas output has developed into the engine driving the overall production growth of CNPC.”

Officials Investigated

The last executive to fall foul of the government corruption probe was Wen Qingshan, the Kunlun chairman who resigned from his post on Dec. 17.

Wen’s departure followed investigations into five other officials at state-run CNPC and its units, including senior managers at PetroChina who were removed from their posts in August amid corruption allegations. The former chairman of both CNPC and PetroChina, Jiang Jiemin, was dismissed as head of the state assets regulator and is under investigation, the official Xinhua News Agency said in September.

CNPC will give top priority to “fighting against corruption” internally and try to promote that course “with efforts unseen before,” Chairman Zhou said in the statement.

“We will let the sunshine in through a strengthened and creative anti-corruption mechanism,” Zhou said.

Changqing and Daqing

CNPC and PetroChina have made $25.9 billion of acquisitions globally in the past three years, according to data compiled by Bloomberg, including assets as far afield as the Caspian Sea, Peru and East Africa.

Changqing oilfield, CNPC’s largest in China, produced 52 million tons of oil and gas last year, or more than 20 percent of the company’s crude output and 40 percent of its natural gas production, CNPC said in a separate statement.

Daqing oilfield in northeast China maintained stable production and its annual output has exceeded 40 million tons for 11 consecutive years, Zhou said.

Crude production in Iraq was 40.7 million tons, while the company produced 13.4 million tons of oil and gas in South Sudan despite the instabilities in the area, according to the statement.

Revenue and profit from overseas operations exceeded expectations set earlier in 2013, CNPC said, without elaborating.

--Editors: Jason Rogers, Abhay Singh