While the major oil companies are cutting jobs and lower the cost for production to boost the profits under this situation. China’s oil giants are struggling in both the order of forbidden cut jobs from the government and tanked oil price. For the cost of per barrel in Daqing which is the most famous oil field in China is $45. All of those factors are contributing to the problematic China’s oil giants.
The dismal earnings reported by China’s national oil giants in recent days underscore the difficulties in meeting that goal. These companies are maintaining their bloated workforces even as Western peers continue to slash payrolls in response to the collapse in oil prices.
The listed units of China’s big three oil companies reported sharply lower earnings for the past year. Net profit fell by 32% at Sinopec Corp., 66% at Cnooc Ltd. and 67% at PetroChina Co., compared with 2014. Unlike their big global competitors, Chinese oil companies have been slower cut costs to boost profits.
While they kept in step with the rest of the industry by reducing spending on exploration and other new investment to boost profits, the cost cutting largely stopped when it came to payrolls with as many as hundreds of thousands of employees.
The lower earnings combined with a dim outlook for 2016 illustrate the bind the government’s demands is placing on large state-owned companies. On one hand, the government’s economic agenda calls for the firms to restructure—and increase profits. At the same time, cutting jobs isn’t an option, given the Chinese leadership’s concerns about unrest as the economy continues to slow after years of high growth.
At a meeting during the legislature’s annual session in Beijing, Jiang Wanchun reported that Daqing, which is owned by PetroChina, lost around $800 million in the first two months of 2016, according to an account in the official newspaper of Heilongjiang province where Daqing is located. He noted that Daqing produced oil at $45 per barrel. That is higher than international benchmarks that are hovering below $40 per barrel.
In response, Mr. Xi expressed concern over employment at Daqing, home to tens of thousands of PetroChina employees. “Today’s economic restructuring cannot come at the cost of workers’ well-being,” the newspaper reported Mr. Xi as telling Mr. Jiang. “We must guarantee the incomes and treatment of the front-line employees.”
Mr. Jiang assured the Chinese leader that PetroChina workers weren’t at risk of getting fired.
While China’s oil giants are among the most global of state companies, their role as job creators has led to workforces and operating expenditures that far exceed their international peers.
Both PetroChina and Exxon Mobil Corp., for example, run world-wide operations, with big refining arms and networks of retail gas stations that provide diverse sources of revenue.
Exxon and PetroChina both reported about $260 billion in operating revenue. Yet, Exxon’s net profit of $16 billion in 2015 was roughly three times PetroChina’s. When it comes to employees, PetroChina has more than 500,000, compared with fewer than 75,000 at Exxon.
At a news conference last week to discuss earnings and assess the outlook for 2016, PetroChina executives said large-scale layoffs weren’t in the plans, though some employees would be targeted for early retirement.
In a written response to questions, Sinopec, which reported earnings Tuesday, said no employees have been laid off since late 2014 when global oil prices began to fall, and it had “no plan for any future layoffs.” The company employs about 351,000 people.
For the No. 3 oil producer, Cnooc Ltd., layoffs among its 15,000-strong workforce have mainly hit overseas personnel. While the company pared its workforce at its Canada-based Nexen unit, it added more than 1,000 new employees in China in 2015, company filings show.
With layoffs off the table, analysts expect that cost cutting will likely focus on previously announced divestment of stakes in noncore assets—such as pipelines, in PetroChina’s case.