Sinopec drills deep into Africa

Asia's top refiner is expanding through investment and social involvement

As Africa becomes increasingly important in the global energy structure, with growing proven reserves of oil and natural gas, China Petroleum & Chemical Corp has big plans for the continent.

In the next five years, the company, usually called Sinopec, plans to invest another $20 billion in Africa and deepen cooperation and exchanges with African governments, companies, people and other stakeholders, says Fu Chengyu, chairman of Sinopec.

Having operated in Africa for the past 20 years, the company's assets there totaled $22 billion at the end of June, the company says.

At the end of last year it was doing business in 15 countries across Africa, with operations spanning upstream exploration and development, petroleum and petrochemical engineering services, oil trading, geothermal projects and refining investment.

Africa was Sinopec's first step toward internationalization back in the 1990s. Since 1993, it has been providing the continent with oilfield services, helping the local exploration industry.

The years of effort have paid off for both sides. Last year, Sinopec's overseas assets accounted for 36.5 percent of its total assets, and overseas sales represented 31.6 percent of the total.

The company says it paid more than $4.3 billion in taxes and fees to governments in Africa last year and created more than 9,000 jobs.

Sinopec's latest move in Africa came on Nov 14, when it bought one-third of Apache Corp's Egyptian oil and gas business for $3.1 billion.

Apache is an independent United States-based upstream oil and gas company that has 24 contractual blocks in Egypt.

The two sides formed a global strategic partnership on Aug 30.

Most energy resources in politically stable African countries have already been taken up by the international oil giants from developed countries, so China's players have to buy assets in riskier locations to satisfy soaring domestic demand.

However, Sinopec says its operations in Egypt are not being affected by political turmoil.

In 2009, the company bought Addax Petroleum, a Swiss company that was listed in Toronto and London.

Sinopec Addax Petroleum has become a key overseas subsidiary, accounting for about one-third of Sinopec's total overseas oil output. The subsidiary's oil and gas assets in Africa are mainly in Nigeria, Gabon, Cameroon, Nigeria and Sao Tome and Principe.

As of the end of June, Sinopec had cumulative investment of about $14.1 billion in Africa. Sun Shangru, deputy manager of the Sinopec Addax Petroleum Gabon project, told China Daily that the company aims to make business decisions in the region based on crude oil prices and political risks.

"Gabon is highly internationalized in Africa. There are oil companies such as Total and Shell doing business locally. The political and natural environment of Gabon is also more favorable, compared with other African countries."

The company should strengthen communication and cooperation with resource-rich countries to improve its business performance, Sun says.

The Gabon project produces 35,000 barrels of crude oil a day. Another project in Gabon is under construction, and is expected to start production in the first half of 2015, according to Sun.

Beyond Gabon, Sinopec has been strengthening its strategic cooperation with the national oil company of Angola - Sonangol EP. Sinopec has taken part in six deepwater oil and gas projects in Angola at the end of June, and had invested about $6 billion in these projects.

It also signed a framework agreement on geothermal energy cooperation with the government of the Republic of Djibouti last year, under which Sinopec agreed to use its advanced technology and experience.

"Sinopec is not only an investor but also a technical service provider, and an advocate and practitioner of low-carbon and sustainable development," Fu Chengyu says.

As Chinese investors expand in Africa, they've also had to learn how to communicate and fit in, a must for China's going global.

Having worked in Gabon for nearly two years, Sun says it takes a long time to get used to local working procedures, which are highly Westernized. "The culture is different, which leads to different working methods and attitudes."

As for Sinopec, Sun emphasized, the company should strike a balance between access to local resources and the sustainable development of the community.

"We have kept most of the positions of the local staff after the acquisition in 2009. To help them work better, we sent a certain number of local employees to China for training and experiencing our culture for better mutual understanding," Sun says.

She says local residents can use the company's utility boats for free as transport between their homes in the rain forests and the towns where they shop.

Company staff often go to the local schools to donate school bags, stationery and footballs.

"We have oil blocks in the region that we have to take good care of. Meanwhile, we need to take care of the local communities as a company," says Sun.

Sinopec has donated more than $6.58 million in Africa in recent years. Money is just one aspect, though.

Sinopec has been trying to recruit more local employees to raise their incomes and cultivate a talent pool of professionals in Africa.

In Nigeria, Sinopec Addax has helped 450 local community members in the past nine years through a training program, which helped them either start own businesses or get a job.

Last year Sinopec learned that people in two villages in Gabon, Gongouwe and Ineganja, had been using rainwater in the absence of clean drinking water.

After study and a field investigation, the company allocated $200,000 from its community fund and hired local well-drilling companies to dig a well for each village.

The company handed the wells over to local governments with official water quality compliance reports in October 2012, to the delight of residents.

Proven oil and gas reserves have expanded rapidly in Africa, and not only in traditional energy-rich regions in the northern and western parts of the continent. Exploration work has also achieved some important successes in southern and eastern Africa in recent years.

According to a CNPC Economics & Technology Research Institute report, Africa's oil reserves stood at 132.1 billion barrels at the end of 2011, accounting for 8 percent of the global figure.

There are more than 60 oil and gas projects under construction in Africa, most of which will be in operation by 2017.

However, since African countries lack refining capacity, they favor more investment in downstream businesses such as refining, which can bring more profit in the sector, instead of just exploration at the upstream end of the business, says Wang Zhen, deputy head of the China University of Petroleum.

Chinese companies should shift their strategy from internationalization to localization in their African businesses, experts say.

Sinopec entered into a framework agreement on cooperation with PetroSA, the national oil company of South Africa, this year, to conduct joint research at the world-class Mutombo petroleum refining project in an industrial park in Port Elizabeth.

"Looking into the future, we will adhere to the business philosophies of integrity and win-win cooperation," Fu says.