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Oil Regulations Level the Playing Field
China recently revised regulations to now officially allow its second largest oil company to cooperate with overseas companies in onshore oil exploration, while CNOOC (China National Offshore Oil Corp) retains its monopoly on cooperative projects in Chinese waters with foreign partners.

According to the revised regulations published last week by the State Council seeking foreign cooperation in oil exploration and development, China Petrochemical Corp (Sinopec Group), the No 2 oil company in China, now can also enjoy the foreign cooperation rights along with its rival China National Petroleum Corp (CNPC), the country's largest oil company.

"The companies (Sinopec and CNPC) are responsible for the negotiation, contract signing and implementation of joint onshore oil exploration projects,'' the regulations said.

An official from Sinopec said the company has already conducted several oil exploration contracts with foreign companies in the past three years because the company was established five years after the original regulation was issued in 1993. The official said the amendment has officially extended co-operation rights to Sinopec.

In a separate revised regulation of onshore oil and gas cooperation, the State reaffirmed the monopoly of CNOOC on offshore oil exploration with foreign partners.

CNOOC will continue to enjoy the exclusive right to conduct oil exploration and production with foreign contractors. In addition, CNOOC, as a State-owned enterprise, is to be in charge of all efforts to explore petroleum resources with contractors in Chinese waters.

Analysts said that under the revised regulations, CNOOC will continue to dominate the oil exploration in Chinese waters, although Sinopec Star, a subsidiary of Sinopec, is also exploring oil and gas in certain offshore areas.

"This reaffirms a favorable regulatory environment for CNOOC' exploration and production business," said Wei Liucheng, Chairman of CNOOC Limited.

Mark Qiu, chief financial official of the company, said, "We informed the market earlier of the ongoing review of the law and expressed confidence that our special mandate will be upheld and that revisions, if any, would be positive. This is good confirmation.''

The recent amendment aims mainly at calling off some items in the original regulations that go against World Trade Organization requirements to prepare for China's entry into the organization.

The amendment has also removed restrictive provisions on technology transfer and domestic component requirements in procurement.

Analysts said the removal of the protective umbrella provides a level playing ground for foreign oil companies.

Foreign companies are still not allowed to sell oil and gas they obtain from the cooperative ventures directly to end users in China, according to the revised regulations. They can sell either to domestic oil companies or transport the oil and gas back home.

However, foreign companies can negotiate with domestic companies to promote sales "in other ways,'' and analysts said the government has, for the first time, loosened its control over the sale of oil products from foreign companies operating in China.

(China Daily 10/16/2001)

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