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Christine Chan

CHIWAN Petroleum Supply Base is oiling the wheels of exploration in southern China.

  A supply base offers oil operators and service companies engineering services for exploration and development, along with basic amenities such as water and electricity, wharf and storage facilities.

  Tenants of the base are oil operators and service companies which rent office and warehouse space and occasionally facilities and equipment.

  'We're part of the infrastructure of oil operations. Offshore operations can't make do without a supply base,' Chiwan Petroleum Supply Base managing director Fu Yuning said.

  From Shenzhen special economic zone, the base serves the largest concentration of oil and gas explorers in the South China Sea, along with the most promising Chinese offshore oil reserves.

  'Offshore oil operations are very expensive, so operators have to rely on efficient services provided by a supply base,' he said.

  The importance lies in the convenience of round-the-clock base facilities which guarantee non-stop engineering backup, quick turnaround of vessels and fast delivery of fuel, water and cement.

  'Because of the complicated nature of offshore exploration, high standards and sophisticated logistical support are required,' he said.

  Mr Fu cited the sudden demand by oil operators for cement materials that needed to be channelled to oilfields.

  'Oil operators don't bring equipment and facilities for oil exploration. They bring geologists and engineers,' he said. Geologists find the right place to drill and engineers check and adjust the pressure during drilling.

  Oil operators leave specialised tasks to service and supply companies, which offer support on a more technical basis.

  Rig positioning is an example - it involves the use of satellite technology to fix the precise location of the rig.

  The world's three biggest oil service and supply companies - Halliburton, Baker Hughes and Schlumberger of the United States - have already set up shop at the Chiwan Supply Base.

  Among the oil operators are some of the world's big names in the sector, such as Amoco, Chevron and Texaco of the US, and Agip of Italy.

  Atlantic Richfield of the US is exploring the biggest gas field in the South China Sea, with gas expected to be channelled off Hainan Island to Hong Kong by next year.

  As of last October, China had attracted about US$2.6 billion to invest in oil and gas exploration and $1.2 billion in oil development, according to China National Offshore Oil Corp.

  The Chiwan Supply Base accounted for about 70 per cent of the country's oil production and drilling activities.

  The 11-year-old base is thriving on the participation of oil operators, but a few years ago its neighbouring supply bases were going out of business.

  A petroleum supply base in Zhuhai, to the west of Chiwan, was shut down in 1989 and another in Shekou, near Chiwan, closed in 1992.

  'The Shekou base set up earlier than us, in 1982, but it didn't discover any oilfields of commercial value, so it had to close,' Mr Fu said.

  He said Zhuhai was inappropriate as a petroleum supply base because of its location.

  Chiwan Supply Base enjoyed the highest level of exploration and drilling activity at the start of business in 1984, but activity subsided in the following years until 1991 when production began.

  The base is a joint venture between China Nanshan Development, which owns a 70 per cent stake, and Offshore Joint Services of Singapore, which holds the balance.

  Offshore Joint Services comprises Sembawang Maritime, Jurong Town Corp and Jurong Shipyard.

  Mr Fu said Chiwan Supply Base had passed the so-called 10-year risk period during which the base could close down fairly easily if drilling results were disappointing.

  'Although the strike rate in the past 10 years was slow and below the expectations of operators, some of which pulled out, activity can be expected to flourish this year and output to climb,' he said.

  China is forecast to produce more than 10 million tonnes from the South China Sea by 1996.

  So far eight oilfields have been discovered and development of four is under way.

    'The oilfields exploited represent one 10th of the geological estimate of the South China Sea oil reserves of four billion to five billion tonnes,' Mr Fu said.

   'The gas fields exploited make up about 20 per cent of the gas reserves of about 100 billion cubic metres.'   China's oil and gas reserves, however, are by no means vast by international standards.

   Rich reserves may be a draw for explorers, but the main driving force behind drilling is the oil price.

  'If the oil price is high, companies will come to drill. In 1972, when the Middle East imposed an embargo, the price shot up to $30 a barrel,' he said.

  In the past three years, oil had fluctuated in a narrow range of $16 to $18 a barrel.

  'Steady oil prices are not the same as high prices,' Mr Fu said.

  Speed of development is also affecting the risk of oil exploration. 'Some operators want a quick return for their investment.

  'They drill at high speed and high cost,' Mr Fu said.

  He added that a waste of resources might result from such drilling, reducing the opportunities for other operators and bringing higher risks for neighbouring oilfields.

  Last year, China began to encourage onshore oil exploration as a less expensive alternative.

  Mr Fu said the new method would not have too much an effect on offshore exploration as long as the government's preferential policies remained.

   He was bullish about the possibility of future discoveries in the South China Sea and expected one more gas discovery in the next five years.

  In its blueprint for future growth, Chiwan Supply Base is to inject $20 million to upgrade efficiency and expand capacity by year-end.

  Issuing foreigners-only B shares and listing them on the Shenzhen Stock Exchange was one of the options available.

  Money raised would be used to strengthen its core business of logistics supply and to buy an equity stake in Chiwan Sembawang Engineering, a jacket fabrication yard.



Exploration industry on solid base