HONG KONG (Reuters) - Throughout his career at China’s biggest oil producer, Jiang Jiemin was careful to put politics before business, say colleagues who worked closely with the purged executive.
In strongly supporting government energy strategy, often at the expense of profitability, the former chief of China National Petroleum Company was a vocal proponent of what he called national and social responsibility for state-owned enterprises, according to his speeches and public statements.
Jiang’s former colleagues say the Shandong University-trained economist is a sharply different personality than some of the rough and tumble engineers and geologists at the top of CNPC. Jiang is a “reserved person,” says a former executive who worked closely with him. “More of a politician than an oil man.”
His polish set him apart from colleagues like current CNPC boss Zhou Jiping, a garrulous engineer widely known and liked in the global oil industry. Jiang’s reserve, however, doesn’t indicate a lack of ability.
Jiang started out in the 1970s as a junior worker in the Shengli oilfield, then China’s second largest, in his native Shandong Province. “He is an extremely sharp guy,” says one former colleague. “He’s quick in grasping new subjects and when he speaks, he hits the right notes.”
But Jiang’s desire to please Beijing made him prone to overpromise and back expensive ventures, detractors inside the company say. Jiang was general manager and party secretary of CNPC when in May 2007 he became chairman of its flagship listed unit, PetroChina. Almost immediately, he stunned the global oil industry and the party leadership with an announcement that PetroChina had made a giant find in Bohai Bay off northeast China.
In a stock exchange filing, the company said it “believes the Jidong Nanpu Oilfield is a bulk, quality and efficient” field with reserves of more than 1 billion tonnes. Global oil major BP Plc estimates China has proven oil reserves of about 2.5 billion tonnes. If confirmed, the Bohai discovery would have delivered a 40 percent boost to China’s reserves at a time of accelerating reliance on imported oil.
China’s then-premier, Wen Jiabao, told the official Xinhua news agency he was so excited upon hearing the news that he couldn’t sleep. Investors were thrilled, too. PetroChina’s shares in Hong Kong jumped 14 percent the day after the news.
Inside the company, some senior officials had doubts. Before the announcement, Jiang had told fellow managers that the Bohai find was a blockbuster. “But, we all understood Jidong is not a new field,” said a senior Chinese oil industry official. “It was unlikely there could be such a big discovery there in light of geological conditions.”
The company sank at least $1 billion to explore the field and build a port and other facilities, according to public announcements. But over the following two years, excitement dwindled in company statements. There are no publicly available production figures for the field, and PetroChina rarely mentions Jidong Nanpu.
Jiang’s judgment was also called into question when CNPC spent heavily to speed the construction of what he called “strategic corridors” for China’s energy imports. These included long pipelines connecting China with Russia, Central Asia and Myanmar.
Over the objections of Chinese industrial planners, Jiang launched the $1 billion, 2,520 kilometer (1,560 mile) Myanmar gas pipeline in 2010. It was completed in June 2013. As analysts had predicted, it has been carrying only a fraction of its capacity, because the offshore Myanmar fields feeding the line were unable to supply enough gas.
Jiang also drove an investment boom when Beijing instructed state-run oil companies to secure more overseas oil supplies. Under him, PetroChina boosted its annual oil and gas production some 32 per cent to 1.4 billion barrels over the seven years to 2013. Over the same period, the company expanded refinery output by almost a quarter.
Internal critics say Jiang drove this investment, sometimes without proper regard for cost or risk, because it would please his political masters. Given the priority the party leadership put on those strategic goals, to be sure, it isn’t clear how much choice he had.
The expansion came at a price. Total liabilities jumped almost 200 percent from 348.3 billion yuan ($56.13 billion) in 2008 to 1.07 trillion yuan at the end of 2013.
Return on equity fell to 10 per cent in 2012, down from a peak of 30 per cent in 2005. At HK$10.80, PetroChina’s Hong Kong listed shares are trading well below their 2007 peak of HK$20. This is in contrast to the shares of other global oil majors, including Exxon Mobil, which are hovering near record highs.
Since Jiang’s arrest, the company has slashed capital spending. Even so, some senior executives say some of Jiang’s strategic decisions - including the loss-making gas pipeline from Central Asia - could yield longer term benefits.
“We should not say all the previous expansion was wrong,” says a senior PetroChina official involved in the company’s offshore investments. “If we had not done it, it would be too late to do it now.”
($1 = 6.2057 Chinese Yuan)
Reported by Charlie Zhu and David Lague in HONG KONG and Chen Aizhu in BEIJING. Edited by Michael Williams