12 August 2003 13:20
Sinopec plans US$1.2b to secure overseas oil and gas reserves
Author: China Petroleum & Chemical Corp (Sinopec), Asia's largest oil refiner, has embarked on 10 billion
yuan (US$1.2 billion) spending spree to secure oil and gas reserves overseas until 2005, the company's president
Wang Jiming said. This is aimed at helping China's second largest oil firm source enough crude supply to feed its
huge refining capacity. It purchases 70 percent of the crude it processes from domestic oil companies such as PetroChina
and China National Offshore Oil Corp and by way of imports. "We will increasingly take advantage of international
oil and gas resources by strengthening cooperation with the Middle East, Central Asia, North and West Africa, and
Russia," Wang said. Chinese oil companies have been aggressive in buying overseas oil and gas assets. PetroChina,
and China National Offshore Oil Corp (CNOOC), the largest and the third largest, have spent billions of US dollars in
acquiring oil and gas reserves in Indonesia, Australia and Central Asian and African countries. But Sinopec appears to
have been lagging behind with few deals struck. In the latest move, the company, together with CNOOC, had planned to buy
a stake in the North Caspian Sea Oil Project in Kazahstan, which is one of the world's largest oil and gas fields.
The attempt was thwarted by existing partners including Royal Dutch/Shell, Exxon Mobil, and Italy's ENI Agip which
exercised preemptive rights to block the deal. "To go abroad, however, is very difficult," Wang said.
Meanwhile, Wang said Sinopec was increasing its investment in exploration in western regions, in an attempt to maintain
steady domestic oil production. To reduce overexposure to external supplies, Wang said Sinopec was increasing the
commercial oil stocks. It has been building and acquiring oil tanks and depots in coastal areas such as Daxiedao in
Ningbo, Zhejiang Province, Huangdao in Qingdao, Shandong Province and Yizheng in Jiangsu Province, Wang said. The
company is also building large docks in coastal regions to handle crude imports, and building a US$240 million crude oil
pipeline from Ningbo, via Shanghai, to Nanjing in Jiangsu Province. Wang said that the second-biggest US mutual-fund
operator had increased its holdings in the company. This follows a foray by value-investor billionaire Warren
Buffett's Berkshire Hathaway, which took a stake in rival Petrochina. According to Wang, Wellington Management,
which manages Wellington Fund as well as other assets for Vanguard, now owns about 1.2 billion of Sinopec's Hong
Kong-traded shares. The holding accounts for 7 percent of the Sinopec's shares on the Hong Kong market. "I am
very confident about Sinopec's shares," said Wang. "Our products are more diversified. Or in other words,
we have stronger ability to hedge the risks." Still, Wang said Sinopec needed to improve efficiency. Wang indicated
that Sinopec planned to shed more employees to reduce costs. "We will continue to reduce the workforce in effective
ways to largely cut down labor costs." In the past three years, the company, together with its parent China
Petroleum and Chemical Group, have laid off 300,000 employees. Sinopec now has a headcount of 410,000. Wang also said
that Sinopec is expected to process 118 million tons of crude oil this year. Wang forecasts the average price of crude
at US$27 a barrel, above his earlier forecast of US$24 a barrel.
[AIW [Asia Africa Intelligence Wire]] |
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