In the international market, CANON is facing to every foreign company in the industry and also endure the pressure from foreign publics and governments. Wars and dispute are the other threat for oil production. Also, the stress comes from other industries in China. CANON is offering a large range of products and services – crude oil, refined oil, LONG, and other related refined products. The large range of products and business needs CANON to pay more attention on control systems and risk management in order to persist on its social responsibility.
One of the corporation cultures is susceptibilities to find and produce clean, reliable, and stable energy to support social advance. Other corporation cultures are people-oriented, create win-win benefits, be credible, and innovation. CANON is staying at its stage of growth in its life cycle. The size and power of CANON is keeping growing. The company is trying hard to import new technology to strength the competitiveness to compete within international environment. Company Overview China National Offshore Oil Corporation (CANON) is the largest offshore oil and gas producer in the People’s Republic of China.
The company is a mega government wend company and directly operated by the State-owned Assets Supervision and Administration Commission of the State Council of the People’s Republic of China. China’s offshore oil industry has started in sass. After China’s reform and opening policy, the Chinese State Council promulgated Regulations of the People’s Republic of China Concerning the Exploitation of Offshore Petroleum Resources in Cooperation with Overseas Partners and decided to establish an offshore oil company on 30 January 1982.
Then China National Offshore Oil Corporation was formally established in Beijing on 15 February 1982. The company has totally experienced five-generation leader groups. Because of globalization and enhancing company’s international competitive in the 21st Century, the fourth leader group decided to implement capital operation strategy, conducted a large-scale enterprise reorganization and successfully entered the international capital market with listing its assets in the New York and Hong Kong stock market in 1999. Nowadays, CANON has registered capital of 94. Billion ARM and current employs 98,750 people and has recorded revenues of 75,514 million US dollars, which accounts for 44. 1 percent of increase from the revises year, and profits of 8,836 million US dollars, which accounts for 22. 1 percent of growth from 2011. The company was ranked at 1st in the rankings of Fortune Global 500, compared with 62nd in 2011. The large number of employees compares with Oxen’s number of 99,100. Probably, this is because of the large number of population of China. As a state-owned enterprise, CANON needs to help government deal with the problem of unemployment.
Organizational Structure China National Offshore Oil Corporation (CANON) is headquartered in Beijing and has four major branches in mainland China, which are located in Tannin, Shanghai, Sheehan, and Changing. The branch of Tannin is mainly responsible for Boo Ha Sheehan branch is responsible for the east of South China Sea, and the Changing branch is in charge of the west side of South China Sea. In order to enhance implementation of strategies and quality of production and optimize the allocation of resources, the corporation sets up nineteen separated departments. The whole organizational structure is set as Figure l.
Based on the figure above, the separate departments are responsible for handling different subjects, which relate to the company and also link with each other. The departments, such as Human Resource Department, International Cooperation Department, and Quality, Health, Safety and Environmental Department, have been given different responsibilities. Human Resource Department can help optimize the allocation of resources. CANON has established Quality, Health, Safety and Environmental Department based on international standard in order to ensure employees occupational health and production safety.
This is regarded as Cocoon’s social responsibility, which will be introduced in the following section. Organizational Culture and Social Responsibility Firstly, the logo of China National Offshore Oil Corporation (CANON) consists with two colors of blue and red. The blue symbolizes sea. This is an offshore oil company. The first red letter ‘c’ symbolizes the rising sun and the red letters ‘NCO’ symbolizes oil drilling platforms on the seas. The whole logo of CANON is presenting that China’s offshore oil industry will be flourishing.
The corporation’s culture has been specifically separated into five sections. The first is called People-oriented. CANON regards and respects people’s value, quality, and rights. The company gives people full space to show their abilities and remunerates people’s rights and interests. The corporation will make people and enterprise develop together. According to the information, which was collected through the interview to a manager of Cocoon’s Tannin branch, the company gives good benefits to its employees. Each employee can get a chance to do physical examination every year.
Every employee, who has worked more than one year in the company, can receive an amount of money for bodied care expenses and has up to 20 days paid vacation every year. The second is Create win-win benefits. CANON has been following the principle of win-win effects and mutual benefits. In order to realize the best allocation of resources, optimal organization, best utilization of talents and maximum value, the company has integrated resources, co-develop harmoniously, and exert company’s potentials. CANON has invited foreign companies, such as Consulship’s, to cooperate to exploit the oil in the China Seas.
The cooperation is working under the situation of China’s immature technology. The third is Be Credible. CANON has kept being credible, open and transparent. The company maximizes the corporation value on the premise of not impacting others’ interests. The fourth is Innovation. The company cultivates creativity and development ability, absorbs new information, knowledge, and concepts, and establishes advanced concepts and systems. CANON wants to break through the limitations of regulations to achieve the first-class performance and pattern. Because of the immature foreign oil companies.
However, CANON has tried its best to exploiting and drilling independently. On May 7th 2012, CANON announced the news that China’s first independent deep-sea oil drilling platform ‘CANON 981’ has already finished building and will be started using in South China Sea on May 9th 2012. The last is Responsibilities. CANON tries hard to provide high quality – clean, reliable, and stable – production for the development of the state and powerfully support social advance. The company sticks to the scientific concept of development and sustainable development to realize harmonious and unified economic, social, and environmental benefits.
Organizational Strategies China National Offshore Oil Corporation’s (CANON) strategy has been consisting with three main components, which are reserve and production, financial discipline, and natural gas. Three components are linked within a circle as shown in the Figure As the most significant resources, an oil company should formulate strategy with considering benefits of its nation, especially the company owned by national government. Increasing production and reserve must be seen as the first significant strategy. China’s oil and gas is from two major ways – exploitation and import.
Highly import oil will increase the cost of refining. Improving exploitation would be a major way to increase the production. As of the end of 2011, CANON has average daily net production of 909,000 OBOE. According to CANON annual report 2011, total net reduction of CANON has kept increasing in recent years from 469,407 OBOE/day in 2007 to 909,000 OBOE/day in 2011. Reserve of oil and gas is another important index to measure power of a country and an oil company. CANON, currently, owned net proved reserves of approximately 3. 19 billion OBOE. However, CANON cannot only rely on the reserves in the China Seas because the reserve is limited.
Therefore, purchasing foreign oil properties is an option to increase the quantity of reserve. Prudent financial discipline is the second strategy. The financial analysis will be present in the third part of this project. Expanding natural gas business is the third section of CANON strategy. CANON regards natural gas as a new and clean energy for a better life for people. CANON imported technology of LONG (Liquid Natural Gas) to China’s southeast coastal provinces in the middle of the sass. Then CANON established CANON Gas ; Power Group, a wholly owned subsidiary of CANON, on April 25th 2008.
Opportunities in the Domestic Environment As China National Offshore Oil Corporation (CANON) is the largest offshore oil producer and seller in China, the company almost exclusively explores and exploits gas and oil within the China Seas. The net oil production output of CANON is increasing year by year. The natural gas production has similar situation as well. High growth of production is facing the highly increasing of domestic demand. As the data from International Energy Agency, for example, China’s demand for crude oil almost doubles from 4. Million barrels per day (MBA/d) in 2000 to over 8 MBA/d in 2009. Furthermore, EIA predicts that China’s oil demand will rise to 12. 2 MBA/d in 2020. Demand for natural gas has same growth in China. High growth of domestic demand brings an opportunity to CANON to face to domestic market. In November 2011, Auto-Gudgeon line, which operated by CANON Gas and Power Group began to supply natural gas to Dingdong. With the growth of natural gas price and demand, natural gas business is more and more important for CANON. As mentioned, natural gas business is one of three major strategy of CANON.
As the second-largest energy user and as well as the largest emitter of greenhouse gas, China needs more stable clean energy. China’s government has released policy to boost the consumption of natural gas and lists this into 12th Five-Year Plan (2011-2015). According to Sea’s June 012 report, the share of natural gas is set to rise in China’s energy mix. Additionally, approved to resume production of Pangaea 19-3 (PL 19-3), which is a cooperating oilfield with Consulship’s, is good news to CANON under high growth of domestic demand for oil and gas after banning production because of oil spill in June 2011.
China’s State Oceanic Administration announces to allow PL 19-3 resuming production on February 16th 2013. The resume production will help CANON improve its productivity. Overseas Acquisitions China National Offshore Oil Corporation (CANON) is very different company with there state-owned enterprises. Compared to other Since and SYNC, CANON is the youngest and the scale is smallest. However, CANON began to internationalist at the very beginning of its establishing. The predecessor general manager Chemung If states that the greatest feature of this young company is connecting with international at the beginning of its establishing.
After establishing, CANON soon released external cooperation regulation. CANON also listed its assets overseas in Hong Kong and New York stock markets earlier than other two domestic competitors – Since and SYNC. As Mr.. Ding mentioned, CANON is China’s first internationalization state-owned enterprise. Also, the group of leaders of CANON recognizes the importance and opportunities overseas in order to improve organizational competitiveness. As the integration of the world economy and the significant of oil and gas to the world economy, CANON has to face to the competitors from the domestic and other countries, such as SYNC and BP.
On the one hand, purchasing foreign oil properties can improve company’s production and productivity. Company can relatively bypass the processes of exploration. On the other hand, acquisition can directly increase the company’s oil and gas reserve. The main goal is to improve the organization’s global competitiveness. Therefore, CANON has never stopped acquiring foreign assets in recent decade. There are two major acquisition cases which are famous and happened in American continent. The first CANON acquisition case happened in mid-2005.
CANON tried to acquire the Uncial Corporation, a US oil producer, with an acquiring competitor Chevron Corporation. CANON offered the price of 18. 5 billion US dollars for the purchasing compared to 13. 5 billion US dollars of Chevron. The result was that CANON failed to purchase Uncial Corporation. This case of CANON acquisition shows three things to people. First of all, Uncial was the ninth biggest oil producer company in the USA. Production of Uncial Corporation accounts for only 0. 2 per cent of global oil production. This seems not to be able to improve Cocoon’s production too much.
However, about 70% of Nuncio’s reserves were all located in Asia. Secondly, Uncial Corporation had higher level knowledge of deep water drilling. This can help CANON deep water drilling has not been mature. The third is that the acquisition had little substantial improvement to CANON. The meaning of this acquisition to CANON is to improve Cocoon’s global prestige. Even the acquisition was failed, CANON showed its strength to the world. The second CANON acquisition case was that CANON offered 15. 1 billion dollars to acquire Next Inc. , a Canadian energy company headquartered in Calgary, in 2012.
The acquisition has been almost finished. Financing. Com predicts that the whole transaction will finished on February 25th 2013. This transaction will be China’s biggest overseas acquisition once the transaction finish. This acquisition is different with the acquisition of Uncial Corporation. The acquisition of Next has more substantial benefits to CANON. Firstly, according to Cocoon’s report, Next has assets in Western Canada, I-J, North Sea, offshore Nigeria, Gulf of Mexico, Colombia, Yemen and Poland. Next has current net production of 207 MBA/d, which can increase 20% – 25% of net daily production of CANON.
However, Next has a high amount of reserves, which can improve 30% on Cocoon’s existing proved reserves. At the same time, Next has a large number of contingent resources. Second of all, in addition to improving reserves and production, this acquisition can help CANON improve its global deployment and strength its existing footprint. Both CANON and Unseen’s footprints are shown in the Figure Ill. The third benefit of this acquisition for CANON is that Next has relatively mature knowledge and technology of shale gas. The world is keeping changing.
Because Use’s breakthrough on the technology of shale gas and shale gas is clean and stapler energy, shale gas must substitute natural gas in the near future. Next has good experience on exploit shale gas on a more than thirty acres shale gas field. The acquisition can directly gain the technology and experience of exploiting shale gas and shorten the period of studying on this field. This also can save cost. The acquisition shows the vision of Cocoon’s leaders. Overall, overseas acquisitions can help CANON improving its production and reserves, ability on R;D, and, finally, improving its global competitiveness.
Also, based on higher competitiveness, CANON can gain more bargaining power on oil price. Strength of Organization China National Offshore Oil Corporation (CANON) is a state-owned company. Therefore, the first strength of CANON is the support from the national government. Chinese government can be seen as a part of CANON as the company is wholly owned by Chinese government. There is an example that can show how Chinese overspent supports China’s state-owned companies. As Since be the example, Syncope’s refining business is a big deficit section in the company.
Because more than 60% of the crude oil which Chinese companies use to refine is imported from foreign countries. Therefore, the cost of refining is really high. However, the price of refined oil cannot be set too high because Chinese citizens do not have enough purchasing power. Thus, Syncope’s deficit is understandable. Chinese government has given Since big amounts of subsidy to Since. According to the data from Chinese authoritative media Nutcase, Chinese government offered Since 5 billion ARM (about $800 million) 2006, 12. Billion ARM (about $1,950 million) in 2007, and Cocoon’s refining business is still small compared with other two Chinese giants. The example means that, as a company in the national strategic industry, Chinese government can surely give CANON enough support on its development. At the same time, in China, the domestic environment, actually, is controlled by Chinese government. CANON does not need to worry about the domestic market. Also, Chinese government has figured out the direction of development for the industry with Five-Year Plan. Therefore, CANON has clear goal in every five years.
Thus, Chinese government brings a very stable domestic environment to Chinese oil companies. So CANON can relatively free to expand and deploy its foreign market. In addition, CANON is a young company and the size of CANON is much smaller than other two Chinese giants. For instance, CANON currently has 98,750 employees, compared with Conic’s number of 552,810. The 2011 revenue of CANON was 75,514 million US dollars, compared with Conic’s 310,515. 5 million US dollars. This could be one of its advantages. Young and small usually mean flexible. CANON can relatively more easily to transform or reorganize when appropriate.
A young company is like a young tree, which has no deep roots. It is easier to move a young tree than a hundred-year tree. Also, a young tree is easier to prune. A young company is similar. Threat of Organization China National Offshore Oil Corporation (CANON) is facing threats from different areas, such as domestic competitors and foreign competitors, while CANON is expanding its global framework and competitiveness. In the domestic environment, CANON currently has two major competitors, who are China National Petroleum Corporation (SYNC) and Since. First of all, three companies have competed with many same businesses.
At the same time, SYNC and Since are stronger and wealthier than CANON. As mentioned, CANON is too young to have mature technology and knowledge compared with other two companies. China’s exploration and exploitation of land-based oil has more than 60-year experiences. However, China’s offshore oil industry is only about thirty years old. Many equipment and technology needs to be imported from foreign countries and CANON needs to cooperate with other foreign companies, such as BP and Consulship’s, or build Joint venture with them. This actually reduces the competitiveness of CANON in the domestic market.
Because Cocoon’s mid- and down-stream businesses have Just started, domestic customers have low awareness on Cocoon’s products. For example, there are many gas stations which belong to SYNC and Since. Their names are shown on the gas station. Chinese people are more familiar with these two giants, but barely person knows what China National Offshore Oil Corporation is. Because CANON is in charge of offshore oil, SYNC mainly exploits land-based oil fields and Syncope’s work is mainly refining, CANON has no competition on up-stream businesses with SYNC and Since.
Therefore, the competition among three impasses mainly exists within mid- and down-stream, such as producing asphalt and lubricating oil. Generally, mid- and down- stream products of refining oil is monopolized by Since because mid- and down- stream businesses are main project of Since. After standing firmly on the field of offshore oil exploring and businesses. The major threats are from these two Chinese oil giants. Threats can be also from foreign competitors because of globalization. These competitors are much more powerful and dangerous because some of them have more mature technology and experience.
These competitors are, for instance, Exxon, BP, and Chevron. In China, for up-stream business, CANON more focuses on exploiting offshore oil and SYNC more focuses on land-based oil. There is barely competitor on exploiting business in China. However, as case of acquiring Uncial Corporation, Chevron is the major competitor in this transaction. CANON failed because of political problem. Also, CANON failed in purchasing the assets of BP in Argentina. Threats can also come from international issues or wars.
Nuclear problem of Iran more or less affected the cooperation between CANON and Iran although President of Iran presents that there was no impact on this cooperation from the nuclear robber. The turmoil in the countries of Africa also affected Cocoon’s regular production in Nigeria and Uganda. Dispute of islands around China seas significantly influences Cocoon’s regular exploration and exploitation in these areas, especially on East China Sea with Japan and on South China Sea with Southeast Asian countries. Additionally, other areas or industries can also bring problems to Cocoon’s exploration and exploitation.
Because of offshore operations, the company has to pay attention on reducing pollution from production. The project of PL 19-3 has been stopped by State Oceanic Administration because of oil spill. Similar situation also happened in the foreign country. BP paid a huge amount of penalty, about 4. 5 billion dollars, for its oil spilling pollution. The oil exploration and exploitation can also have conflict with fisheries because the crude oil, which CANON has proved, may be under the sea where fisheries operation area is. Similar conflicts may happen between CANON and Chinese military.
The evidence is difficult to find on the internet. CANON has to get many kinds of consents to be allowed to exploit the oil in the military zones. Products and Services Offered by CANON Up-Stream Oil and gas exploration and exploitation is the core business and service of China National Offshore Oil Corporation (CANON). CANON has four major oil field zones: Boo Ha zone, west of South China Sea zone, east of South China Sea zone, and East China Sea zone. In 2011, CANON produced about 50 million tons of crude oil and 16. 7 billion cube meters of natural gas.
Mid- and Down-Stream Liquid natural gas is clean and staple energy resource, which people all like. CANON makes natural gas as its major strategic business. In China, CANON firstly imported technology of LONG and built several big projects at China’s coastal. The rejects have helped the development of China’s LONG industry. Nowadays, CANON owns over three thousand kilometers pipeline net in China. The LONG is used in different areas. For example, CANON is using LONG on generating electricity. Total power generation capability is 16. 5 billion SKEW. Refining is a new business to CANON in order to improve organizational competitiveness.
CANON has kept producing high quality refined products, including product of CANON refining product. The company is producing high standard asphalt and consecutively gains No. L asphalt in China. Organization-owned gas stations have begun existing in some cities. Fertilizers are another major product of Cocoon’s down-stream product. The major products include: urea fertilizer, phosphate fertilizer, Compound Fertilizer, etc. CANON also has business of technical services. This sector of business includes three subsidiaries: China Oilfield Services Limited, Offshore Oil Engineering Co. Ltd, and CANON Energy Technology ; Services Limited. Their services spread to most areas of the world. Financial Services are also a part of Cocoon’s business, including CANON Finance Co. , Ltd, CANON Insurance Ltd, Shanghai Trust Co. , Ltd, AEGEAN-CANON Life Insurance Co. , Ltd, and CANON Investment Co. Ltd. Information Technology and Control Systems The companies in the oil and gas industry need to pay more attention on control systems and risk management. This is because there is a lucrative industry and high risk from domestic and foreign competitors and oil and gas have high strategic significance to countries.
Governments of countries will intervene into the industry. Fortunately, Chinese government has paid more attention on the oil and gas industry, which means that the companies in the industry are firstly controlled by central government. For example, the twelfth Five-Year Plan asked CANON keeps the annual growth rate of in this five-year, which is from 2011 to 2015. The goal of crude oil output is 50 million tons. The government help CANON figure out the macro direction of development in the future. In addition to governmental external control system, CANON also has its own internal control system.
For example, CANON has recognized the importance of quality, health, safety, and environment. CANON has its Health, Safety, and Environment system (HOSE) and Quality, Health, Safety, and Environment Department. The system is “operating to international standards to ensure staff occupational lath and production safety; this is regarded as part of corporate social responsibility’. Organization Size and Life Cycle Organization Size China National Offshore Oil Corporation (CANON) is a big size of company based on the number of employees. The company has 98,750 employees.
This is a big number if it compares with Exxon, who is listed as the second on Global 500 Fortune, has 99,100 employees. CANON has spread its business to both domestic and international levels and has all production lines of offshore oil and gas exploration and exploitation, oil and gas recessing, oil and gas separation, refining and selling, and all down-stream production lines. Including domestic and international oilfield, CANON has a high level of both proved reserves and contingent reserves. At the same time, CANON is expanding and purchasing foreign assets.
CANON will sustainable grow to a much bigger size. Organizational Life Cycle Despite CANON has expanded its business to almost every area related with oil and gas industry, CANON is still staying at the growth in its life cycle. This is shown First of all, as mentioned, compared to other two Chinese oil giants, the size of CANON is too small. Since and SYNC are listed at the fifth and sixth on the ranking of Global 500 Fortune and CANON is currently listed at the 101 the on the ranking of 2012. Secondly, Cocoon’s global presence and competitiveness is still low.
However, the several huge overseas acquisitions are increasing Cocoon’s presence and influence, especially when CANON successfully acquire Next Inc. Thirdly, different with land-based oil exploitation, China’s technology of offshore oil exploitation is still immature. Many equipment and technology need to import from foreign companies. CANON is actively improving its level of technology through R&D and acquiring expert companies, such as CANON acquiring Next to gain the technology of exploitation of shale gas. Innovation and Change Cocoon’s innovations are mainly demonstrated in up- and down-stream.
In the up-stream business, both exploration and exploitation are the major targets of innovation. For exploration, CANON is improving from AD technology of exploration to AD technology exploration. Currently, CANON completed AD seismic surveys totaling 1 ,362 kilometers and AD seismic surveys 23,462 square kilometers. For exploitation, CANON is working hard to develop its independent drilling platforms, especially the pep-water drilling platform. CANON 981 is one of achievements of Cocoon’s R&D. CANON realizes that high-tech is a significant feature to the offshore oil industry.
CANON persists on technological innovation to support its future growth and has also kept improving its capability of independent innovation to ensure a clean, reliable, and stable energy supply to society. CANON has always seen developing new energy as its responsibility in order to support its sustaining development. In 2007, CANON invested 80 million ARM to establish CANON New Energy Investment Co. , Ltd, which is a wholly subsidiary of CANON. The company’s businesses cover exploration and utilization of renewable and clean energies including wind power, coal-based clean energy, biomass energy, and II-ion power battery.
These also show Cocoon’s ethical values and social responsibility. Summary of Key Findings Based on the Cocoon’s organizational analysis above, the company is a young and lively company and it is brave to challenge into new fields. The company is ready to expand in the international environment with the early preparation since it was Just established in 1982. Cocoon’s organizational structure is almost mature. However, the independent genealogy on offshore oil exploitation is the biggest weakness of CANON.
CANON is ready and available to face to any opportunity from domestic market. As the most significant strategy of CANON, CANON should be more actively on improving production output and oil and gas reserves. Chinese government can help the company coordinate the relationship with other industries, such as fisheries. Cocoon’s group of leaders has a good long-term vision to see what is going on in the far future. They can prepare far ahead of things happening. The major consideration for CANON is that the huge overseas investment may bring political risks to the
