By Lai Haokui, Liu Guocheng, Zhang Shen, Li Chunyu, Sun Long
May 13, 2002 is a day engraved in the hearts of people with Sinochem Petroleum Exploration & Production Co., Ltd., as it is on that day that the company was officially established undertaking the strategic mission of “extending toward petroleum upstream business” of Sinochem Group.
From 2003 when it became a petroleum production company obtaining the first barrel of equity oil and after four years’ learning, exploration and accumulation, Sinochem Petroleum Exploration & Production Co., Ltd. made progress and breakthroughs every year during the five consecutive years from 2007 to 2011, with an annual increase of the equity oil yield of more than 500,000 tons. Currently, the company’s oil and gas production capacity with all assets exceeds 4 million tons/year. By the end of June this year, the company had held equity in 30 oil and gas blocks in 11 countries, and now, it holds equity in 23 oil and gas blocks in 10 countries, acquiring an equity oil and gas yield of about 100 million barrels accumulatively and achieving synchronous growth of yield and operation profits.
From nothing to something, from small to big, from a non-operator to an operator, from land to sea and from development domination to simultaneous promotion of exploration and development, Sinochem Petroleum Exploration & Production Co., Ltd. has been walking through a pioneering road flanked by hardships and challenges in the past decade. The decade’s development course serves an epitome to and witness of Sinochem Group’s strategic transformation project and more importantly, inherits the enterprising spirit of Sinochem Group passed on for more than six decades without interruption.
And what is behind these are struggles and efforts of people with Sinochem Petroleum Exploration & Production Co., Ltd. who travel day and night and leave their families for jobs, and their dedication and perseverance which make them never give up in face of setbacks and challenges.
Course of Entrepreneurship with Confusions and Uncertainties
Upon inception of Sinochem Petroleum Exploration & Production Co., Ltd., the company was faced with short staffing and much work. As a result, to work overtime was a routine, and sofas, night work and instant noodles became key words with high frequency among the staff. Instant noodles in the offices were never enough to eat, sofas behind working tables were worn out; and every member of the staff had to think about a great quantity of work upon waking up.
The preparations were long and miscellaneous with trifles, as the pioneers had to become “experts” from green hands, which also saw the fastest growth of every member of them. New employees were just like sponges, and they absorbed enough water quickly in high-pressure and high-intensity work. They screened and assessed new projects earnestly, conducted project feasibility study, applied for various kinds of approvals, went through all necessary formalities and submitted numerous reports to persuade relevant national departments, Sinochem Group and themselves as well, turn their hesitation into determination and grow together with the company.
After engaging in merger and acquisition and operating projects, people with the company became busier. In 2003, due to lack of rest in carrying out project pre-evaluation, a member of the project team fell asleep while he was eating bread on an airplane he was traveling with to US for due diligence of the CRS project in Ecuador. It is lucky that he didn’t choke, and this episode amuses us whenever we think of it. At the end of 2004, this same member attended the TCM/OCM meeting in Ecuador. Since the day and night there are reversed compared with China due to time difference, the member worked around the clock by working and attending meetings in daytime and communicating with the headquarters in China according to the work hours at home during his several days’ stay in Ecuador. After going back to Beijing, he worked for another two days and nights and finally completed the formulation of the planning.
In 2007, during the ten days and nights when the company was evaluating the first large project worth several billion US dollars, Sinochem Group established a leading group, a financial evaluation group, a legal affairs group, an assets appraisal group and a liaison and coordination group. On the meeting reporting project evaluation results to leaders of Sinochem Group, when leaders present finished seeing a slide with relatively more contents and expected to see the next one, they found that the colleague responsible for showing the PPT slides already fell asleep, at which all leaders of Sinochem Group smiled in an understanding manner.
Such stories in the past decade cannot be finished even in several days and nights. Project development was accompanied with confusions and uncertainties most of the time, when it was difficult to take even one step further and it seemed that there was no way out ahead.
Looking back into the past decade’s development of Sinochem Petroleum Exploration & Production Co., Ltd., people with the company strove to enter into the upstream petroleum business area at the very beginning, then fought for honor unremittingly in the subsequent two or three years’ development amidst twists and turns, and finally struggled for expansion based on a certain scale. In the decade’s development with hard struggles, Sinochem Group has supported as always Sinochem Petroleum Exploration & Production Co., Ltd., which serves the backbone of our continued progress.
Acquisition Process with Bitters and Difficulties
The Atlantis project was the first merger and acquisition project of Sinochem Petroleum Exploration & Production Co., Ltd. From the end of February 2001, the company started to evaluate the project. Sinochem Group pooled elites from technological, commercial, legal, financial and tax fields, recruited professional consultants and organized its leaders to directly participate in the assessment and negotiations in the seller’s office in London, which formed the “Dream Team” for Sinochem Group’s upstream project evaluation and negotiation.
In this project, the sales agreement on the natural gas field in UAE was a key issue in the acquisition and also one of the significant preconditions for payment of the acquisition expenditures. Although the acquisition agreement was initiated in 2002, execution of the agreement was delayed repeatedly due to a failure in satisfying the preconditions. Most colleagues in the negotiation team ever made a bed on the floor, cooked meals and heated water and even fried instant noodles in the two apartments on the Thames in London. Some of our project evaluation professionals ever travelled to and fro between London and Beijing twice a week to communicate with the headquarters and negotiate with the seller. The ground crew of CA at London Airport was so moved by our perseverance, that they once made an exception to raise us from the economic-class cabin to the first-class cabin.
Although this transaction was a project with a small resource scale and scattered assets as compared with later transactions, it was a project with the longest decision making time and the most winding process on which we exerted the most efforts. It is also in this project that we accumulated the initial overseas merger and acquisition experience and established an overseas merger and acquisition team.
Despite the tortuous process of the first transaction, on May 21, 2010, we acquired 40% equity of the Peregrino oil field in the sea of Brazil from Statoil ASA with 3.07 billion US dollars with only 76 hours’ closed-door negotiations in a hotel in Singapore, completing the largest-scale overseas investment of the company to date. For each project in the past decade, its pre-acquisition assessment, negotiation, decision making, submission to relevant national authorities for approval and consideration as to whether the application materials will be approved and the opinions will be accepted, have condensed countless efforts of people with Sinochem Petroleum Exploration & Production Co., Ltd. and tested our professional spirit and competence all the time.
Post-acquisition Development with Various Risks and Substantial Fruits
Acquisition was difficult, but post-acquisition management and value realization turned out to be more difficult.
The UAQ gas field is a block of offshore oil and gas assets of the Atlantis company, containing a high concentration of hydrogen sulfide, and its development is much more difficult than those on land. Although the Atlantis company ever tried for many times to develop this gas field and put forward many development plans exploring and expanding the natural gas sales market, the development project was put on hold due to the large investment scale, unfavorable investment environment and other factors. At the end of 2004, as the gas field development had been delayed for a long time, the UAQ government issued an “ultimatum” by requiring terminating the cooperation with the Atlantis company on the development of the UAQ offshore gas field.
In face of limitations and risks in reality and business development needs of the company, people with Sinochem Petroleum Exploration & Production Co., Ltd. did not give up and they made an enterprising and courageous decision, that is, to develop the UAQ offshore gas field by themselves and ensure its success.
First, we built “bridges” to perform project economic evaluation conscientiously and proposed the profit distribution plan acceptable to both parties to the government according to local conditions, to resume our cooperation with the government. Second, we made careful analyses of the eight opinions put forward by the host country UAQ government, including the three significant opinions to us, worked out solutions, solved tough problems firmly and calmly, managed to coordinate with the host country of resources, the natural gas purchaser, shareholders of the former Atlantis company and other parties with more than one year’s efforts and negotiations, and finally formalized the gas field development agreement on March 21, 2006.
In June 2008 and after 786 days and nights’ struggle and efforts, the first independently-developed project of Sinochem Group as an operator achieved well opening and went into production successfully, by starting commercial gas delivery from the gas field. The victory was hard-won.
Success in the UAQ gas field development served the first step of transformation of Sinochem Petroleum Exploration & Production Co., Ltd., which not only cultivated talents and accumulated experience for the company, but also brought considerable economic benefits to the company.
After merger and acquisition of the Atlantis oil and gas company, Sinochem Petroleum Exploration & Production Co., Ltd. succeeded in the delivery of 14% non-operator equity over 16 blocks in Ecuador and obtained more than 200,000 tons of share oil in the same year, enabling Sinochem Group to take substantive steps in its extension towards petroleum upstream business and exerting great influence on the oil industry both at home and abroad.
However, in the first year after handover, the blocks only accomplished 2/3 of the planned yield. One can imagine what pressure everyone in the company endured. In that year, almost no one got the bonus, and a pessimistic atmosphere hung over the company. At that moment, no one with the company gave up, and with concerted efforts of the project operator and cooperative partners with Sinochem Group included, they kept exploring their potentials in oil field exploration and development and finally made their daily yield hit 70,000 barrels in August 2007.
In 2011, by strengthening studies on the distribution of remaining oil and optimization of well location, a batch of high-yield wells including AMO-A-108, AMO-A-104 were dug on the 16-block oil field, offering strong guarantee for stable production of the oil field. Currently, the 16 blocks in Ecuador maintain a daily yield of 45,000 barrels, which are also the third largest oil field of our company in addition to the 10 blocks in Brazil and Yemen.
After achieving success in the Atlantis project and the 16-block project in Ecuador, Sinochem Petroleum Exploration & Production Co., Ltd. stepped on a smooth road in extending towards petroleum upstream business, to which more than one hundred employees have dedicated their youth and hard work.
For overseas work, to understand, adapt to and integrate into local culture is always a thorny issue, but it is also a key point determining whether we can carry out the work smoothly. Employees of the project company come from a dozen of countries, such as UK, India, Pakistan and the host country. In this “international team” with members of different skin colors, smooth cooperation and harmony will help them get twofold results with half the effort. On the contrary, it is also common in a similar environment that difference in cultural traditions and customs can result in great reduction of a team’s cohesive and executive force. At the very beginning, we understood and got adjusted to each other in interpersonal collision and friction. Nevertheless, our Chinese employees knew very well in our hearts that communication and cooperation was the only way out. With shared objectives and beliefs, employees with Sinochem Petroleum Exploration & Production Co., Ltd. gradually created a harmonious team atmosphere with their enthusiasm and patience.
“I am proud that I am a member of you.” Today, when we are delighted at the achievements of Sinochem Petroleum Exploration & Production Co., Ltd., we also revere those who have made these happen. If the company feels like seeking further development and becoming larger and stronger, it shall be prepared for more and larger challenges. “The revolution has not yet succeeded, and comrades still need to work hard.”