Chinese Sinopec looks to future in deepwater oil
By Karen Teo
HONG KONG, Nov 15, 2004 (The Standard) Driven by China’s overwhelming energy needs and rivalry with the country’s two other major energy companies, Sinopec Group is increasingly looking across the globe for overseas acquisitions.
The company, the upstream parent of Sinopec Corp, currently lags China National Petroleum Corporation (CNPC) and China National Offshore Oil Corp (CNOOC) in overseas acquisitions.
“I think you are beginning to see Chinese oil firms take on more risks in order to acquire assets overseas, for instance Sinopec is now venturing into Iran, which may potentially have political risks due to its nuclear programmes,” a China-based consultant said.
Sinopec now feels the potential for finding large oil and gas deposits may be greater in deepwater areas in the Gulf of Mexico, the Caribbean Sea offshore Brazil than it is in domestic onshore fields and China’s offshore waters, a source at Sinopec said.
Sinopec is eyeing a partnership with Brazilian oil firm Petrobras, known for its extensive experience in deepwater drilling. Sinopec plans joint designing, engineering, provisioning, and construction of the Gasene, a natural gas pipeline that is to link the municipalities of Cabinas in the state of Rio de Janeiro and Catu, in Bahia, as well as gas compression stations which will be installed along the pipeline.
The company expects to firm up an agreement during a visit by President Hu Jintao and Chinese oil companies to Brazil, Argentina, Chile and Cuba last week.
The Brazilian oil ministry said Friday that Sinopec may be the preferred investor for the project, according to ET Net News.
In return, Sinopec hopes to gain deepwater drilling technology from Petrobas as it currently has no expertise in the area.
“Petrobas can help us develop essential skills in deepwater exploration and we are looking at overseas exploration cooperation,” the Sinopec source said.
Although Sinopec sees vast potential in deepwater exploration in the long term, its current focus is still in the Middle East and Africa.
“We are looking at Saudi Arabia, Iran, Nigeria, and the Ivory Coast,” the Sinopec source said.
The company’s first big break was in obtaining the rights to explore the Rub al-khali Basin. The first phase of the project, which includes exploration drill wells and seismic surveys is estimated to cost US$300 million (HK$2.34 billion). The first phase will last for more than 10 years.
However, this is nothing compared to the billions of dollars that CNPC and CNOOC have poured into buying oil and gas equities in countries such as Indonesia, Sudan and Australia.
Sinopec signed a memorandum of understanding with the Iranian government last month for rights to participate in the Yadavaran field as well as purchase 10 million tonnes of liquefied natural gas for 25 years from Iran in a deal estimated to cost US$70 billion. According to industry sources, the Chinese oil company may also invest in Iran’s refining and petrochemical sector in exchange for Iran’s oil and gas resources.The company also has rights to develop the Stubb Creek Field in Niger Delta in Nigeria. The field is expected to reach an annual output 4,100 barrels per day of oil.
Industry sources say it will be tough for Chinese oil companies to acquire substantial oil and gas assets overseas due to increasing competition from international oil companies.
Chinese oil companies have failed in their attempts to buy into several overseas projects including a huge North Caspian Sea Project in Kazakhstan in 2003.
Existing international majors including ENI Agip, Royal Dutch/Shell and ExxonMobil exercised pre-emptive rights.
Analysts also say increasing competition is making it difficult for CNPC to find overseas assets to match that of its Sudan assets.
Under a major restructuring move to boost its upstream assets, PetroChina, the listed arm of CNPC, will buy over the assets of its parent including those in Kazakhstan, Venezuela, Sudan, Iraq, Iran, Peru and Azerbaijan to add to its Indonesian production.
However, Sinopec Group has no plans currently to transfer its assets to its listed arm.
“We are still in the process of building up our overseas oil and gas assets so we are not ready to do that yet,” a source from Sinopec Group said.