Libya’s war caused damage to China’s oil investment

As the war situation in Libya became more apparent, our oil companies began to count the economic losses caused by the Libyan war. Recently, PetroChina said that its subsidiary Great Wall Drilling Engineering Branch had suspended six overseas project contracts in the Middle East and Africa, affecting Changcheng’s annual drilling revenue of about 1.2 billion yuan. At the same time, the semi-annual report of CNOOC's China Oilfield Services Co., Ltd. shows that, due to the Libyan war, the first half of the year saw an impairment loss of 65.7 million yuan. Experts remind that overseas investment projects of Chinese oil companies are mostly concentrated in political turmoil and areas with harsh natural conditions, and investment risks are increasing.

A person in charge of PetroChina stated that in order to ensure the safety of personnel, Great Wall Drilling suspended six overseas project contracts in the Middle East and North Africa. It is understood that these suspension of contract projects in Libya, Niger, Syria, Algeria and other places are political turmoil. The six projects are expected to affect Changcheng's annual drilling revenue of 1.2 billion yuan. For Great Wall drilling, which accounts for 45% of overseas business, the impact has exceeded the international financial crisis in 2009.

It is understood that after the suspension of the above project contract, most of the employees in Great Wall drilling have evacuated, but still leave some employees to look after the equipment. The person in charge mentioned that once the situation improves, the Great Wall drilling will re-enter these markets.

In terms of CNOOC, Li Yong, chief executive officer and president of COSL, stated that in the first half of 2011, the impairment loss of assets was recognized at 67.4 million yuan, mainly due to the civil war in Libya during the reporting period, which affected the land rig business in Libya. At present, the company’s net assets in Libya are about 300 million yuan. The company’s oilfield service facilities in Libya are intact, but desert rigs are not known. Whether or not to continue to provide for asset impairment losses in the second half of the year will depend on the local situation.

It is understood that due to the impact of the Libyan civil war, CNOOC suspended the drilling of five drilling rigs in Libya at the end of February this year. Regarding whether or not to withdraw from Libya, Li Yong said that it is still too early to talk about it, because the prospects of the local business are still unknown and it is still necessary to observe. He also pointed out that the company’s previous contracts with local companies and governments are still valid, and it is a common problem faced by the company and other large oilfield service companies.

Zhu Wei, deputy director of the Information and Market Department of the China Petroleum and Chemical Industry Federation, pointed out that because China's economic development is relatively backward compared to developed countries, overseas investment destinations for Chinese enterprises are mostly relatively backward countries, and these countries have many turbulent political situations. The United States, Canada, and other places have stable political conditions and rich oil and gas resources. However, we cannot get in because they have the ability to develop. Therefore, the overseas investment of Chinese enterprises, especially energy investment, faces greater risk of force majeure. Resources are becoming increasingly scarce, and oil prices are rising. While rising prices have caused oil resources to compete, China’s overseas oil and gas investment risks are increasing.