WESTERN FIRMS SIGN PETROLEUM PACTS WITH CHINA

March 6, 1995
Three U.S. companies and a Canadian firm have signed a flurry of contracts covering upstream and downstream petroleum projects in China. Deals with the U.S. companies were signed at a Beijing ceremony with U.S. Energy Sec. Hazel O'Leary late last month. O'Leary led a trade mission to China of energy leaders from business, environmental organizations, and government on energy and trade that occurred as the outbreak of a trade war between Washington, D.C., and Beijing seemed imminent.

Three U.S. companies and a Canadian firm have signed a flurry of contracts covering upstream and downstream petroleum projects in China.

Deals with the U.S. companies were signed at a Beijing ceremony with U.S. Energy Sec. Hazel O'Leary late last month. O'Leary led a trade mission to China of energy leaders from business, environmental organizations, and government on energy and trade that occurred as the outbreak of a trade war between Washington, D.C., and Beijing seemed imminent.

Signing contracts with the Chinese were Texaco Inc., Halliburton Energy Services, Honeywell Inc., and a unit of Lateral Vector Resources Inc. (LVR) of Regina, Sask.

More than 50 U.S. companies took part in the trade mission.

The Clinton administration had vowed to impose trade sanctions against China if some accord could not be hammered out over the issue of China not protecting rights of U.S. creative properties. China, in turn, threatened to retaliate with trade sanctions if the U.S. imposed sanctions.

The two governments last week signed an agreement that would lead to such protections, averting a possible trade war.

TEXACO GASIFICATION

Where Texaco Licensed Gasification Projects (130555 bytes)

China's Ministry of Chemical Industry (MCI) and China Petrochemical Corp. (Sinopec) chose Texaco's gasification process to retrofit nine fertilizer plants as part of a plan to boost fertilizer production.

Six MCI and three Sinopec plants will use Texaco's gasification process to convert coal into clean synthesis gas that will serve as feedstock to produce more than 3 million tons/year of chemical fertilizer.

By using Texaco gasification technology, Sinopec will be able to back out higher cost naphtha with relatively low cost, abundant, domestic coal and thus reserve the naphtha as a feedstock for higher value products such as gasoline.

Including the latest projects, Texaco has licensed more than 20 gasification plants in China. It contends the cumulative environmental benefit from the projects is a cut in total emissions of 20 million metric tons/year of sulfur dioxide, nitrogen oxides, carbon dioxide, and leachable solid wastes.

The company also is working with Chinese agencies to develop power plants using its gasification process.

HALLIBURTON VENTURE

Halliburton signed an exclusive joint venture (JV) agreement with Liaohe Petroleum Exploration Bureau (LPEB) for the manufacture and sale of flow measurement equipment

The JV, owned 51% by Halliburton and 49% by LPEB, will produce and sell advanced technology turbine flow meters and flow measurement products for oil field service in and outside China.

The 10 year JV is expected to generate revenue of $40 million.

LPEB will build liquid and gas meter calibration systems according to Halliburton specifications. Halliburton will transfer technology and provide technical training in manufacturing and assembly, calibration, product sales and marketing, and flow measurement options.

LPEB oversees upstream operations in the Liaohe producing area, a group of oil and gas fields in Liaohe province of Northeast China that is the third biggest petroleum producing area in the country The area produces about 280,000 b/d of oil and 163 MMcfd of gas.

Halliburton and Chinese National Petroleum Co. (CNPC) in 1993 created a joint service company to supply a wide range of products and services to China's oil and gas industry.

HONEYWELL CONTRACTS

Sinopec subsidiaries signed agreements worth $4.2 million with Honeywell to provide industrial control equipment to two Chinese hydrocarbon processing complexes.

Included is a $3.8 million contract to supply industrial automation systems to Yangzi Petrochemical Co., the biggest single order to date for Honeywell's Chinese operations. Under the contract, Honeywell will replace analog instrumentation with advanced distributed control systems, enabling Yangzi to expand productive capacity at its Dachang, Jiangsu, petrochemical complex. The complex centers on a 300,000 metric ton/year ethylene plant that started up in 1984.

The Yangzi project, to be complete by June 1996, will allow the complex to cut energy and feedstock consumption by reducing process upsets and product variation.

The other agreement is a letter of intent to provide a comparable distributed control system to Yueyang General Petrochemical Works. The first phase of the Yueyang project, worth about $400,000, calls for Honeywell to upgrade the industrial automation system in the company's synthetic rubber plant.

Operating in China since 1979, Honeywell garnered almost $200 million in revenues from sales to China in 1994.

LVR DRILLING PROGRAM

LVR unit LVR International agreed with CNPC and Chinese National Oil & Gas Development Corp. to conduct horizontal drilling programs in Liaohe and Dagang oil fields. They are China's third and fifth largest producing areas, respectively

The drilling campaigns could require $40 million during its first 3 years.

The rehabilitation programs involve an option to drill at least 57 reentry horizontal wells in Liaohe and 37 horizontal wells in Dagang.

LVR will earn 90% of incremental production for 18 months and a tiered production share for another 30 months. Payment will be in U.S. dollars with the oil price keyed to West Texas intermediate or the Chinese oil market price, whichever is greater.

Operating costs and royalties are to be agreed prior to drilling of each well.

LVR hired Moyes Newby, a Dallas firm, to complete a financial model of the two drilling programs. LVR also named James Pasieka to act as adviser in the project. Pasieka is a former vice-president of business development for Husky International and former general counsel for Wascana Energy, both Canadian producers.

LVR's agreement is subject to Chinese and Canadian regulatory approval.

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