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TheStreet Open House

PetroChina Under a Cloud as China’s Graft Battle Guts Front Office

BEIJING (TheStreet) -- China's current oil crisis has nothing to do with fuel shortages. Nor is it about the geopolitics of Chinese oil rigs in the South China Sea or even the Middle East.

This is an executive staff crisis brewing at China's biggest oil producer PetroChina (PTR), whose front office has been shaken by a Communist Party purge tied to Chinese President Xi Jinping's ongoing campaign against high-level corruption.

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Investors who think that a company's management staff can affect its stock value should look beyond PetroChina's financials -- 2013 net profit of $22.5 billion, up 1.1% from 2012, and revenue of $432 billion, up 5.7% year-on-year) and successes such as an historic 30-year gas deal it recently signed with Russia's Gazprom. PetroChina's ADRs in the U.S. are around $130, up 18% for the year to date. 

PetroChina's personnel shakeup, which began a year ago next month with no end in sight, has sent dozens of top executives packing. Some have been formally detained by party authorities on extrajudicial charges of bribery or other graft. Other company chiefs have simply disappeared.

Some market analysts have hailed the anti-corruption drive at PetroChina by pinning it to Xi's push for more market reforms at state-owned companies. Oil majors such as PetroChina, which is the listed unit of China National Petroleum Corp., and Sinopec (SHI) are high on the reform agenda.

Sweeping out "tigers," the word Chinese use to describe corrupt government officials and company executives, is said to be good for targeted companies.

But anecdotal evidence suggests PetroChina's top managers are functioning in a climate of fear. One source told TheStreet that some departments have contingency plans for immediately replacing any executive who vanishes. A head check every morning determines whether it's time for someone new. Meanwhile, PetroChina's press office is refusing routine media queries.

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To date, at least 50 executives working at PetroChina or one its affiliates or close contractors have been ousted, according to a tally published Thursday on the business pages of the Sohu (SOHU) online news portal. These include the company's chairman, five group vice presidents, a planning chief, the company treasurer, several sales department heads, and executives in charge of overseas projects in Iran and Canada.

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