Interesting, to the point of strange, if we did not understand the nature of the game; watch the flag pole over the next few years ...
interactive.wsj.com
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August 28, 2001
Business and Finance - Asia
State Oil Firm From China Says
It Is Close to Deal With Taiwan
By MATT POTTINGER
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Oil companies owned by the rival Chinese and Taiwan governments are close to signing an unprecedented contract to jointly explore the Taiwan Strait, a step that would extend commercial ties into a potential war zone.
Wei Liucheng, chairman and chief executive officer of China National Offshore Oil Co., or CNOOC, China's No. 3 oil producer, disclosed in an interview that his company is finalizing plans with Taiwan's state-run China Petroleum Corp. to search for oil and gas under the Tainan Basin -- a broad swath of ocean floor located between Taiwan and the mainland. Beijing has thrown its weight behind the plan, and the contract is tentatively scheduled to be signed in November, Mr. Wei told The Asian Wall Street Journal. He made the remarks after CNOOC announced a slight decline in net profit for the first six months of the year. An official with Taiwan's China Petroleum confirmed the planned joint exploration, but said it is still awaiting approval from the Taiwan government.
Although it is unclear how much oil the Tainan Basin holds, the latent political significance of the project for Taiwan and China is unmistakable. Mr. Wei said the project would mark the first major commercial agreement between state-owned companies from the two sides. It would also thrust a potent symbol of shared civilian interests into a body of water that in recent years has been associated more with missile tests and prowling submarines than profit margins.
"If this succeeds, it would of course be a very important project for cross-Strait ties," said Mr. Wei. He stressed that CNOOC's interests in the project are more commercial than political. "We're much stronger in terms of exploration and development capability, and they're much better at refining," he said. "It's an excellent union."
The deal would also advance the Taiwan government's recent pledge to boost economic ties between the sides, despite the political split that has divided them since 1949. That economic initiative got a critical boost over the weekend when an advisory body to Taiwan's president, Chen Shui-bian, officially recommended an easing of long-held restrictions on trade, transportation and investment across the Taiwan Strait.
Beijing so far has withheld comment on Taiwan's new initiative, and could still derail the proposed closer economic links by attaching political conditions. Still, Taiwan's President Chen has pledged to implement the recommendations of the advisory board, and the changes could mark a historic shift in economic relations between the two rivals and inject even more Taiwan investment into the mainland. Privately owned companies in Taiwan already have invested more than US$40 billion in China over the past decade.
CNOOC and Taiwan's China Petroleum also stand to gain if they strike pay-dirt in the Tainan Basin. Taiwan depends on oil for roughly 90% of its energy demands, the majority of it imported from abroad, and the island, which is struggling with a faltering economy, would benefit from an injection of cheap, domestic crude, analysts said.
China is also a net importer of oil. And although even a large discovery in the basin is unlikely to quench the country's booming thirst for crude, a discovery could have strategic benefits for Beijing. It could increase Taiwan's reliance on the mainland for its economic health and energy supply, which would give Beijing leverage in its goal of reunifying the sides, said Paul Bernard, head of oil and gas research for Goldman Sachs in Hong Kong.
While the project would be unprecedented, the idea for it isn't. CNOOC and China Petroleum made first steps toward joint exploration in 1996, when they agreed to conduct geological research on the Tainan Basin, the China Petroleum official said.
But Beijing suspended further cooperation after former Taiwan President Lee Teng-hui in 1999 announced his "two-states theory," a political formula that Beijing viewed as a step toward independence by Taiwan and that plunged relations into a deep freeze. Indeed, continuing political friction between the two governments could still scuttle the deal. "The timetable isn't something our company can decide on our own," said the China Petroleum official.
Mr. Wei said the sides would contribute equally to the exploration, which would entail seismic testing and drilling over a period of about three years, and then development of wells if significant discoveries are made. He declined to disclose financial terms, and said he would travel to Taiwan in November if the project gets the go-ahead.
His comments came after CNOOC reported that net profit in the first six months fell 4.1% to 4.62 billion yuan (US$558.2 million) from 4.82 billion yuan a year earlier. The drop was mainly the result of a higher tax rate the company now pays. Before taking taxes into account, the company's earnings rose 11.2%, it said. "I thought the results were strong," said Goldman's Mr. Bernard. "They came in a touch ahead of our expectations."
-- Jason Dean in Taipei contributed to this article.
Write to Matt Pottinger at matt.pottinger@awsj.com3.
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