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No. 15 of 2016 (General Serial No. 246): The Audit Results of the Financial Revenues and Expenditures of China National Offshore Oil Corporation for t
2017-06-08日   Soure : 【来源:International Coorperation Department】 :

No. 15 of 2016 (General Serial No. 246):

The Audit Results of the Financial Revenues and Expenditures of China National Offshore Oil Corporation for the Year 2014

In accordance with the stipulations of the Audit Law of the People’s Republic of China, in 2015 the National Audit Office (CNAO) conducted an audit over financial revenues and expenditures of the year 2014 of China National Offshore Oil Corporation (hereinafter referred to as CNOOC). The audit focused on the headquarters of CNOOC and 5 subunits including China National Offshore Oil Co., Ltd. and CNOOC Gas & Power Group Co., Ltd. (hereinafter respectively referred to as CNOOC Ltd. and Gas & Power Group), with the extension and tracing back to relevant items.

I. Overview

CNOOC was founded in February 1982. The main business areas it engages in include the exploration and development of crude oil and natural gas, the production, transportation and trade of petroleum refining, petrochemical and other chemical products, pipeline transportation and trade of oil and natural gas, and research and service of related engineering technologies etc.

As reflected in the consolidated financial statement, in the end of 2014, CNOOC possessed 449 wholly-owned or holding subsidiaries and 140 shareholding companies; registered capital amounted to RMB94.932 billion, the total assets reached RMB1,119.374 billion, the total liabilities was RMB475.483 billion, ownersequity was RMB643.891 billion and the asset-liability ratio was 42.48%; the realized operating revenue of the same year was RMB611.6 billion, a net profit of RMB79.173 billion was earned, return on equity was 12.98% and the rate of the valve maintenance and value increase of state-owned capital was 112.31%.

Entrusted by the CNOOC, Dahua Accounting Firm audited the consolidated financial statement of 2014 of the corporation and issued an unqualified audit report.

The audit results conducted by the CNAO indicated that CNOOC had formulated the development program of the second leaps, clarified the goal of two steps, major work and measures, constantly improved the corporate governance structure, established the system of internal control focused on comprehensive risk management and gradually improved the quality and efficiency of the company's development. The results also demonstrated that some problems still existed in fields such as financial management and accounting, major corporate decision making and management, development potential and professional ethics of CNOOC.

II. Major Problems Found in the Audit

(I) On financial management and accounting

u In 2014, CNOOC failed to include RMB716 million salaries of informal staff into total payment management.

u From 2011 to May 2015, CNOOC had irregularly disbursed RMB60.8672 million employee bonus beyond the total payment.

u In 2011, CNOOC headquarter over-confirmed RMB194 million deferred income tax asset.

u From 2010 to 2014, CNOOC Heavy Oil Processing Engineering Technology Research Center Co., Ltd. (Qingdao) had failed to share the deferred income according to the prescribed time, resulting in an overstatement of a revenue of RMB23.8015 million, among which the amount of 2014 was RMB4.7681 million.

u By the end of 2014, CNOOC Energy Development Co., Ltd. Engineering Branch had failed to include one overseas subsidiary into the consolidated financial statement, involving an amount of RMB18.2713 million.

u By the end of 2014, CNOOC Sales Company (hereinafter referred to as Sales Company) had failed to timely sort out the accumulations of related costs, resulting in an overstatement of RMB10.1733 million costs; failed to timely sort out other accounts payable that occurred before 2010 and had no clear objects to pay, resulting in an understatement of RMB5.3507 million revenue.

u From 2011 to 2013, the Headquarters of CNOOC had reimbursed RMB5.04 million of gift costs with irregular invoices.

u From 2011 to 2014, Gas & Power Group had listed and paid for the employee transportation expenses in the costs in excess of the total payment, resulting in an overstatement of RMB1.6599 million of costs, among which the amount of 2014 was RMB506,900.

(II) Corporate decision-making and management

u By the end of 2014, the net profit of CNOOC, domestic natural gas production, overseas crude oil production and gas production had only completed 49.45%, 59.87%, 57.89% and 52.43% respectively of the indicators of the development planning during the 12th Five-Yea Plan period.

u By the end of June 2015, four major projects of CNOOC had progressed slowly. Among RMB7.749 billion of the planned total investment, only RMB1.531 billion had actually been completed.

u In 2013, CNOOC Ltd. enacted a program for the production increase of an overseas oilfield without the approval of the National Reform and Development Commission. By the end of 2014, RMB4.448 billion of investment had been completed.

u By April 2015, Sales Company had signed 72 agreements to acquire gas stations without conducting appraisal and the contracted amount was RMB1.94 billion, among which the amount of 2014 was RMB933 million.

u In 2011, CNOOC Ltd. sold an overseas company with RMB1.423 billion without reporting it to CNOOC for approval according to the rules and without conducting appraisal.

u By 2014, an overseas company that CNOOC Ltd. had purchased with RMB14.242 billion in 2011 had generated a total loss of RMB621 million due to inadequate early stage demonstration  and feasibility study.

u In 2012, CNOOC approved the feasibility study report on the renovation project of raw material routes of the subunit CNOOC Tianye Chemical Co., Ltd. (hereinafter referred to as Tianye Company). Due to inadequate argumentation of the project, by June 2014, the project had been halted with an actually completed investment of RMB106 million and an actually generated loss of RMB84.92 million.

u In 2013, CNOOC Petro-Chemical Co., Ltd. (hereinafter referred to as CNOOC Chemical) purchased part of equity of an overseas company but failed to conduct sufficient demonstration of provision such as premium. By 2014, this investment had seen a potential loss of RMB29.748 million.

u In the case that no necessary prevention and control measures had been taken for related risk warnings, in 2008, CNOOC approved one biodiesel project investment of the subunit CNOOC New Energy Investment Co., Ltd. (hereinafter referred to as New Energy Company). The loss began started to occur once the construction of the project was completed in 2012. By 2015, the transfer had resulted in a loss of RMB39 million.

u In 2012, in the absence of required attendance and by adopting the method of written consent votes casted after the meeting by those having failed to attend the meeting, the merger and acquisition management committee of CNOOC Ltd. decided on an overseas equity acquisition project. 

u Investment review decision making committee of CNOOC and other two decision making agencies only had meeting summaries but had no meeting records, and had no clear stipulations for how to deal with conditional votes.

u Projects management:

ü In 2014, without related procedures such as environmental impact assessment, the subunit China United Coal-bed Methane Co., Ltd. started the construction of the coal-bed methane development project in Xingjiashe, Gujiao city, Shanxi Province of which the total investment would be RMB2.85 billion. By May 2015, RMB109 million of investment had been completed.

ü From 2011 to 2014, CNOOC and 13 affiliated enterprises had awarded engineering projects contracts worth RMB1.533 billion through competitive negotiation instead of calling for bids, and the amount of 2014 was RMB734 million.

ü In 2013, Offshore Oil Engineering Co., Ltd. (hereinafter referred to as CNOOC Engineering) irregularly subcontracted the cold insulation project in the general contract of Tianjin liquefied natural gas (LNG) storage tank project to a company with expired qualification and the contract amount was RMB5.56 million.

ü In 2008, without reporting to the National Development and Reform Commission for approval, CNOOC Engineering started the construction of three 300,000 tons docks and supporting facilities projects in Qingdao and completed the construction in 2011. The actual investment was RMB1.409 billion. By the end of 2014, RMB155 million had been accrued as depreciation reserves because the main facilities docks and gantry cranes had been idled.

u Procurement administration

ü From 2011 to 2014, the subunit Gas & Power Group and its 16 affiliated units and CNOOC Refining Chemical Co., Ltd. and its 8 affiliated enterprises had irregularly disbursed RMB362 million to purchase from the suppliers outside of the identified suppliers of the companies, among which the amount of 2014 was RMB100 million.

ü From 2012 to 2014, without reporting to CNOOC for approval, CNOOC Chaozhou Energy Company (hereinafter referred to as Chaozhou Energy) had disbursed RMB226 million to purchase natural gas transportation service, among which the amount of 2014 was RMB78.6615 million.

u Asset management:

ü From 2011 to 2014, in violation of the regulations of CNOOC, two units including Chaozhou Energy had sold 29,900 tons of liquefied natural gas without contracts, involving an amount of RMB157 million, among which the amount in 2014 was RMB89.9722 million.

ü By the end of 2014, state-owned property rights of 102 affiliated enterprises of CNOOC should have been registered but had not.

ü In 2013, Chaozhou Energy subleased the leased collective land of 105 mu and all assets on the land without conducting appraisal.

u On the Information construction, by the end of 2014, the Enterprise Resource Planning (ERP) system of 252 companies and the financial system of 48 companies among the 499 wholly-owned or holding subsidiaries of CNOOC had failed to conform to the national interface standards; 58 contracts with the largest amount of money in the procurement of information system had been spot checked, 23 of them had false recordings, and the data quality was poor.

(III) Development potential

u Regarding independent innovation, from 2011 to 2014, the investment in science and technology of CNOOC accounted for between 1.11% and 1.27% of the main business income and the investment in research and development accounted for between 0.36% and 0.55% of the main business income. There were gaps between above percentages and the 2.5% and 1.8% required respectively by the regulatory authorities. Meanwhile, by the end of 2014, 11 core technologies that were aimed to be attained by the "12th Five-Year" plan of CNOOC hadnt been mastered completely.

u As for overseas investment, in 2014, the overseas assets and income of CNOOC accounted for 42.98% of total assets and 54.85% of operation revenue, but the profitability was weak, and the total overseas profit only accounted for 14.12% of the total consolidated profit; 16 companies among the 85 overseas operating companies were in the loss, involving an amount of RMB889 million, and 4 companies had been in the loss for more than 3 years in a row with an accumulated amount of RMB1.674 billion.

u Management and risk control:

ü According to the statistical specifications of CNOOC, from 2011 to 2014, there were 1,080 production safety accidents (among which 18 were general production safety accidents according to the statistical specifications of State Administration of Work Safety, and the actual amounts of loss of some accidents were underreported.

ü By the end of 2014, the total loss of 56 affiliated independent legal entities under Gas & Power Group had been RMB1.133 billion (60.87% of loss scale), and the total loss of 32 affiliated independent legal entities under Sales Company had been RMB258 million (34.78% of loss scale); From 2011 to 2014, the total loss of the New Energy Company with a total asset RMB4.522 billion had been RMB515 million.

ü In 2008, CNOOC approved the 60,000-ton POM project of Tianye Company. And in 2011, after the project was completed, there was a production capacity excess in the market. Because the production cost was higher than the selling price, there were constant losses after the operation. By the end of 2014, RMB1.482 billion had been accrued for the depreciation reserves.

ü By June 2015,the coal mines and coal chemical project in Yangpoquan with RMB678 million investment from China Chemical had been halted because of underground water gushing accidents and disputes between shareholders, facing a loss of RMB511 million.

ü From 2011 to 2014, CNOOC had had 315 lawsuit cases, among which 35 cases involved over RMB50 million.

(IV) Professional ethics

From 2013 to 2014, in violation of the spirits of the Eight Rules of the central government, the subunit Shanghai North Marine Shipping Co., Ltd. listed and paid RMB462,700 for golf consumption.

III. Audit Disposal and Rectification

In regard to issues discovered through auditing, the CNAO has issued audit report and released letters of audit decisions in accordance with laws, and CNOOC will notify the general public of the details of straightening and rectification.

Clues related to issues in violation of laws and disciplines discovered through the audit have been transferred to departments concerned for further investigation.