Hong Kong Stock Exchange: disciplinary actions taken against CHK OIL(00632) and one of its former directors.

On March 3rd, the Hong Kong Stock Exchange announced disciplinary actions against CHK OIL Limited (00632) and a former director. The Hong Kong Stock Exchange condemned CHK OIL Limited and former executive director, CEO and chairman, Mr. Yu Jiyuan, for making statements that harmed investor interests. The Hong Kong Stock Exchange stated that the company's financial performance and reports were seriously inaccurate, incomplete, and/or misleading, violating the Listing Rules. Mr. Yu Jiyuan was found to have failed to report significant asset issues of the company to the board, audit committee, and auditors for over two years, including losses related to those assets. Under a leasing agreement with local government departments in the United States, the company held mining rights for several oil and gas fields through a subsidiary, with the condition that the oil fields must continue production to maintain the rights. In June 2022, the local government departments issued a written order to resume oil production in certain leased oil fields, but due to the company not responding to the request, the local government departments terminated the leases in November 2022. At a critical time, Mr. Yu knew about the termination of the leases and the written orders but did not report to the board until August 2024. Mr. Yu had multiple opportunities to report the termination of leases to the board, audit committee, and auditors but did not take action. He knew the termination of leases would have a significant impact on the financial condition of the company and its subsidiaries, but allowed the company to continue recording the leases in its financial statements. Evidence showed that the company did not remove the terminated leases from its balance sheet, resulting in overstatements of total assets by about 65.5% and 58.1% for the years ending in 2022 and 2023, respectively. This led to serious inaccuracies, incompleteness, and/or misleading information in the financial statements. Investigations found that Mr. Yu delegated responsibilities to an employee of a related subsidiary and relied on them to handle lease-related matters and dealings with government officials. However, he did not ensure that the employee was capable of handling these issues and did not actively supervise or guide the employee after delegating responsibilities. The Hong Kong Stock Exchange found that Mr. Yu had not fulfilled his duties and responsibilities as a director under the Listing Rules, and the violations were severe. The company and Mr. Yu agreed to resolve the disciplinary actions through a settlement. They did not defend their violations and accepted the sanctions imposed by the Listing Committee.