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Oil& Gas Journal,August 7,1989

Original as appeared in Oil & Gas Jounal can be viewed below , posted 2010-1-16

The first onshore production-sharing contract awarded by the Chinese has been concluded, demonstrating that a Chinese and western partner can work side by side and achieve major goals within budget.

The Australian operator, CSR Orient Oil Pet Ltd., completed 1,200 km of seismic and drilled six wells in their lease on northern Hainan Island. Results on northern Hainan Island resulted were not commercial for the foreign consortium ,primarily due to relatively small finds of no existing industry infrastructure, but certainly it was shown that in a country where there has been a lot of disillusionment, operations can be successfully conducted if management is adapted to the unique local conditions.

  CSR knew they were on a winning management system after the first few days of seismic production. At first, local oil industry officials claimed that the seismic production rate would be the same as previous domestic operations – until it was realized that the new operation could attain 100km/month, not per year the operator’s administration manager John Coulter, who managed three previous oil projects in China, and speaks Chinese,summarized the adaptive style as follows:

  1. All local employees were paid directly and in effect, managed by the operator. This was a sensitive issue but, based on the experience of other projects, was critical to success. Local employees only receive about $30 out of the several hundred dollars paid as monthly fees to the labor unit. Negotiations with labor supply organizations took several months resulting in a carefully designed system of cash food allowances, production bonuses, and responsibility awards which worked very well. In essence, on a monthly expenditure commitment of about $400,000, an extra $15,000 turned the normal disinterest in productivity and maintenance into an operation where foreign equipment and technicians were almost never held up by local personnel.
  2. Seismic land operations through intensive cultivation proved to be a challenge. Initially the Chinese partner intended to organize permitting of farmland and damage compensation. But the first seismic lines were in an area where even the Chinese partners were treated as foreigners, unable to speak the dialect. CSR recruited individuals to represent their operations who were able to talk directly to farmers, and thus quickly resolve impasses. A complicated but cheap system of compensation and equipment protection was evolved Antagonism on previous domestic seismic operations had been so bad that cables had to be gathered each night and laid out next day (5 hr of each work day). The main problems had been poor communications between city oil industry bureaucrats and the farmers, and misappropriation of compensation payments.
  3. Within a month of setting up office in China, the operator had indentified a organizations and key personnel with capacity to influence the project, an  with capacity to influence the project, and compiled a chart showing this information. This chart showing this information. This chart proved invaluable in locating the project’s position within a large and complicated bureaucracy at the national, provincial. And county levels, and pinpointing which linkages and personnel were to be pursued to tackle each problem. As one field manager expressed it, without an understanding of the network, a  lot of time could be of the network, a lot of time could be wasted dealing with the wrong officials.

4.  The operator politely but firmly resisted attempts made at the establishment stage by the Chinese partner to override the contract and take over control of operations.

        Specific examples of attempts made were:

  •   Coersion to sign operational procedure documents which effectively handed over control;
  •   Designation of local officials to set out and enforce production targets;
  •  Use of Chinese language business cards and publications indicating Chinese control..

The standard contract text gives the operator reasonable rights, and it simply requires resilience to not relinquish any aspect of those rights. There were occasions when intercession from the partner’s superiors was sought out to defend those rights.

5. The operator took a pragmatic view of assurances that local power, fuel, transport, sites, buildings, food, and peripheral services such as heath would be provided at the right standards and on time. In some cases the local inputs were excellent, in other cases unacceptable, requiring alternative planning.

6. Foreign staff were screened for temperament, on the proven axiom that patience and tolerance are prerequisites for working in China. Staff and spouses were well briefed before setting in, and went through basic language training.

: http://www.coulterexergy.com/archives/643

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