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:
- 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.
- 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.
- 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.
by John Coulter, China Trade Report, February, 1983
Original as published can be viewed below at 2009-9-23
THE joint venture between Geosource of the United States, a seismic oil exploration company, and the Chinese oil industry has ended its first year of operation with both sides much the wiser. The three-year project is designed to introduce modern seismic techniques in the Qaidam Basin of northwest China.
In view of China’s urgent need for oil to fulfill development goal, and the proven record of the US-based multinational, both partners had high hopes of success. The Chinese side hoped for about 10,000kms of geophysical across-section maps of possible oilfields, plus a massive transfer of operating, maintenance and repair technology, while Geosource anticipated close to a third profit on this investment and an edge have been serious shortfalls on all counts.
As was later revealed, the QPC was not unanimously convinced of a need for much of the imported equipment nor the foreign specialists. The QPC seismic exploration unit, hoping to avoid “contamination” from the foreigners, set up a special group in a distant town to handle them.
The QPC seismic exploration unit has four field crews, each of several hundred workers, using mainly domestically manufactured equipment (though the vital field electronics are made by a Geosource subsidiary).These local crews each log an average 20-50 kms a month except during winter when they close down.
Geosource undertook to provide three field crews, each consisting of about nine foreign experts and several-million US dollars-worth of high-technology equipment and machinery to be matched with about 100 local workers. Each crew guarantees to produce more than 100 kms a month, with provisions for adjustments for abnormalities such as bad weather and strikes.
The targets are generally being met, but with excessive depreciation of equipment and a parallel impact on the morale and health of project staff.
Soon after 40 foreign technicians, mechanics and administrators assembled in Lenghu, west Qinghai, with their US$12 million-worth of vehicles, instruments and equipment, problems became apparent.
Helicopter service was one of the earliest problems. After being told years ago by Geosource that helicopter support would be needed to explore the oil-rich Huatugou sedimentary range, the Chinese insisted on buying and operating their own aircraft.
When the time came to put the field crew to work, the CAAC pilots and service personnel turned out to be completely outside the control of foreign and Chinese crew managers. They disobeyed reasonable instructions, took hours meals and on one occasion left Geosource and QPC personnel in the mountains overnight in below-freezing conditions because the pilot flew to a nearby town without permission.
The Chinese Government lost several monthly US$250.000 free payments because of the helicopter snafu. Fortunately for the project, in October last year, after standing by for several months, the helicopter unit returned with a new leader and a new attitude – and has worked well since.
Problems also arose as a result of false images the two sides have of one another. The Chinese expected a foreign expert to be a man of propriety consonant with his formal qualifications. They were not prepared to deal with a western seismic oilman and his penchant for nose-thumbing at bureaucracy and officials.
The foreigners were equally ill-prepared for dealing with the Chinese. From the “rednecks” to the managerial types, they all expected labour on relations to be excellent, based on their experience with industrious Overseas Chinese and their image of the communist system as disciplined and honest.
In fact much of the labour on the project was unskilled and unwilling. Qinghai desert workers seem to be rejects from other places, and possibly the worst of these were assigned to work with the “foreign devils.”
In a typical labour incident, a young and inexperienced but over-confident Chinese driver might climb into a new, expensive and complex drill vehicle and start doing something obviously wrong – say, bog it in sand then over-rev it and crash the gears.
Theoretically, the leaders on both sides have now agreed, the Geosource mechanical supervisor should call on an interpreter to instruct the driver to operate the vehicle correctly. In practice, interpreters are often unavailable. What is likely of occur is a shouting and key-snatching match, and at worst, some manhandling, followed by a shutdown, reports and “criticism.”
The Geosource man, with his professional provide, with explain his side – “when I hear that noise, I know something is going to give within seconds – last month 11 differentials on this kind of vehicle were damaged because of ignorant abuse.” The Chinese boss, defending his driver, is likely to reply: “But the foreigner swore at him. In China after Liberation, workers are masters of their own destiny!”
As yet there is no bonus system, nor any way to promote or fire workers. Labourers in the field receive about RMB 160 a month. This seems high compared with east coast wages, but in fact it is the same as salary received by colleagues working in the parent unit not involved with foreigners who work eight hours a day rather than 10, six days a week rather than seven, and rest for most of the winter months.
Workers sent to work with Geosource are further from home, in rougher terrain and have a higher productivity. Team and crew leaders get the same as workers so there is little enthusiasm for responsibility.
One progressive-minded QPC area manager agreed to a wage system structured on responsibility and productivity. Workers heard of the system and became excited. Two deadlines for starting the new system passed by. Finally the director of QPC, who is politically important enough to have attended the 12th party congress, came to the field and denounced the scheme as anti-socialist. Relations with the workers after that worsened.
Geosource agreed to underwrite the resupply of spare parts which resulted in enormous costs, especially last winter when workers may have sabotaged equipment in order to stay indoors. Houston headquarters responded by sending in tougher managers to meet the Chinese head-on.
The new rationale behind day-to-day operations is that there is no point in worrying about the next contract if money cannot be made on this one.
In retrospect there was no easy way to find out the major problems without putting men and machines on the ground and getting fingers burnt. There are many clauses and operating procedures Geosource would now like to see in the contracts but they just did not occur to anyone until incidents actually occurred, ranging from a knifing and a handgun confrontation, to strikes, theft of foreigners’ belongings, equipment abuse, reckless use of dynamite, detonators and helicopters and drunkenness on the job.
Ironically, the hardnosed Texas oilmen and their rednecks were taken in. Said one, with his jaw set and lips tightened: “If we get another shot at a contract, we’ll be ready for ‘em.”
Until recently, the author worked as crew manager for Geosource’s Qinghai Project.