Leadership reshuffle at China big oil clears path for reform

The China National Petroleum Corp chairman’s role will be taken up by Cnooc Chairman and former CNPC executive Wang Yilin

China confirmed the reshuffle of leadership at its biggest oil companies, helping clear a path in a crucial area of the economy for President Xi Jinping as he plans his overhaul of the nation’s bloated state sector.
Changes to the top executives at China National Petroleum Corp., Sinopec Group and China National Offshore Oil Corp. could accelerate market-driven reform of the oil and gas industry. The new chairmen will also be challenged to steer the oil giants through Xi’s corruption crackdown, which has wracked the industry, and a tumble in global crude prices.
The departure of CNPC Chairman Zhou Jiping after two years in the job has been anticipated as he nears retirement. Most chiefs of state-owned enterprises step down at 63. Yesterday’s exit of Sinopec’s Fu Chengyu, who has led the company since 2011, may be more of a surprise after he was allowed last year to go beyond the designated age. Wang Yupu, deputy head of the Chinese Academy of Engineering, replaced Fu as chairman, according to Sinopec’s official Weibo account.
Wang Yilin, formerly chairman at China National Offshore, took over from Zhou at CNPC, according to company newspaper China Petroleum Daily. Zhou stepped down after reaching the official retirement age, the paper said on its official Weibo account yesterday. Yang Hua, earlier president at China National Offshore, replaces Wang at the company.
“New leaders would have better opportunities and less of a burden to move the reform forward quickly, that is exactly what the leadership change is about,” said Gordon Kwan, Hong Kong-based head of regional oil and gas research at Nomura. It comes against a backdrop of “internal reforms, the overwhelming challenge of low crude prices and pressures from the sweeping anti-corruption campaign,” he said.
CNPC’s listed unit PetroChina Co. yesterday gained 0.8 percent to HK$10.04, China Petroleum & Chemical Corp., Sinopec Group’s listed unit, rose 1.4 percent to HK$7.36, while China National Offshore’s listed arm Cnooc Ltd. gained 0.3 percent. The city’s benchmark Hang Seng Index was little changed.
What happens next to China’s energy sector is the subject of much speculation. CNPC and Sinopec Group’s listed units spiked on April 27 on rumors they could merge after a newspaper reported that China may cut the number of its state-owned enterprises to 40 from 112. In March, people familiar with the government’s plans told Bloomberg that reform could see companies bundled by industry and their control handed to state asset-­management firms.
The reforms are part of China’s bid to bolster flagging economic growth and Xi’s insistence that market forces play a more decisive role. State-owned companies account for roughly a third of the economy and more than a quarter of them are loss-making, Barclays Plc analysts said in August.
Leadership changes in energy “signal that the central government wants to continue to deepen reform of the state-owned sector, and the change starts from the top,” said Willy Wo-Lap Lam, an adjunct professor at the Chinese University of Hong Kong. That could involve scaling back “the oil companies’ monopoly in certain areas little by little.”
A full-blown merger of CNPC and Sinopec is unlikely, according to some analysts, largely because of their size. CNPC’s listed unit PetroChina vies with Exxon Mobil Corp. as the biggest energy company by market value, while Sinopec is Asia’s largest refiner.
The two control most of China’s crude imports, most of its oil and gas exploration rights and pipelines, and over half of its petrol stations, suggesting a greater risk of inefficiency if combined. Any resulting job losses – PetroChina alone employs more than half a million people – would also be difficult for the government to stomach.
Both PetroChina and Sinopec said last week they hadn’t been told of any merger plans.
“Obviously, the new leaders would have passed the central government’s corruption screening, and they don’t have to face the kind of questions that many of the older generation faced when China’s anti-corruption push swept the industry,” said Nomura’s Kwan. “In that sense, the leadership changes also provide the oil companies with a fresh beginning.” Aibing Guo, Bloomberg