Sinopec Faces Hefty Fine over Gabon Oilfield Project

Addax Petroleum, a subsidiary of China Petrochemical (Sinopec), reportedly plans to spend US$400 million in February in order to iron out its dispute with the government of Gabon. The company has been charged with violating its contract during the development of the onshore Obangue oilfield.

The row emerged in the wake of the contract signed by Addax and the Gabonese government in late January granting the former 10-year exploitation rights for three Gabonese oilfields. The Gabonese government later asked Addax to pay US$400 million in debt due to the latter's failure to fulfill its commitment in paying back tariffs and other fees, a practice similar to many other foreign petroleum investors in the nation, said a Gabonese petroleum industry insider.

With the contract breach, the Gabonese government also intends to discontinue exploitation bids for one of the oil fields when the contract expires in 2015, said the petroleum minister of Gabon. For the same reason, two other international petrochemical firms will also face similar penalties.

Switzerland-based Addax, acquired by Sinopec for US$7.5 billion in 2009, now contributes to one third of the latter's overseas oil production.

The incident is just another tuition bill paid by China's three major petroleum companies in their overseas exploitation education in recent years.

In May 2011, China National Offshore Oil Corporation resolved to withdraw its bid for an Angola project under the pressure of Indonesian state enterprise Pertamina. In June of the same year, Sinopec aborted a shale gas project in western Canada due to the strict restrictions of its partner Encana of Canada. In August 2011, CNPC Great Wall Drilling Company, under Sinopec, suspended six major oil exploitation contracts in Libya and Niger. In August 2013, the government of Chad ordered Sinopec to stop a local oilfield exploitation project, due to the spill of crude oil to the neighborhood.

The missteps of the three major petroleum firms in their overseas ventures could be the result of insufficient experience, lack of constraints of related laws and regulations, and the blurred distinction between power and responsibility, said Zhou Xiujieh, an energy industry analyst at CIConsulting, as cited in the Chinese-language Securities Daily.

(wantchinatimes.com, edited by Topco)