CHINA REDUCES FEES TO ATTRACT EXPLORERS TO ONSHORE OIL FIELDS OFFSHORE BOOM FAILS TO MATERIALIZE

CHINA REDUCES FEES TO ATTRACT EXPLORERS TO ONSHORE OIL FIELDS OFFSHORE BOOM FAILS TO MATERIALIZE

China is reducing some of the royalty fees it charges in hopes of making onshore oil areas more attractive to overseas explorers.

The changes apply to oil and gas fields going into production after Jan. 1 this year, according to a notice on royalties payments issued jointly by the Ministry of Finance and State Taxation Bureau.This waives royalty payments for companies exploiting oil and gas fields in Qinghai province, Tibet and Xinjiang - all remote areas in the west and southwest of China - if annual output for each field is under 1 million metric tons (about 7 million barrels) of oil or 70 billion cubic feet of natural gas.

Fields producing between 1 million and 1.5 million tons annually will pay 4 percent of the total annual production of crude in royalties. Output up to 4 million tons will attract royalties of between 6 percent and 10 percent, and production above that will pay 12.5 percent.

The interim provisions promulgated by the ministry five years ago waived royalty payments for annual production up to 50,000 tons of crude and 3.5 billion cubic feet of gas.

"The purpose of these substantial cuts in royalties is to encourage development of medium-sized and small onshore oil fields and to create a good investment environment for foreign businessmen," said Wu Yaogwen, a senior official with China National Petroleum Corp.

Mr. Wu said different royalty levels are being set for different areas

because exploration and development costs in the west will be higher than along the coast.

China relies on onshore fields for most of its oil, but the biggest producers are in the northeast and are dwindling after decades of steady output. The anticipated offshore boom hasn't arrived, and China needs to find new sources.

A third round of onshore bidding is under way. The official said it "has attracted almost all the large international oil companies."

The first two rounds generated bids of around $500 million, but the second was distinctly sluggish. Many firms said the largely desert environment made production too difficult, even assuming China's estimates of reserves are correct.

China's onshore output in the first half of 1995 was 69.72 million tons, about 347,300 more than in the 1994 period, official figures show. Natural gas amounted to 275 billion cubic feet, an increase of 1.5 billion cubic feet.

Fields in Xinjiang's Tarim Basin produced 1.3 million tons of crude, 33 percent more than a year earlier. Xinjiang is China's next big hope for substantial gushers.

Last year's second round of onshore bidding saw only three of 26 blocks taken up amid complaints over insufficient data and poor-quality acreage. Three companies - British Petroleum PLC, Exxon Corp. and Italy's state-owned Agip SpA - took up blocks in the first round in 1993 to explore the Tarim Basin.

Costs are estimated in the millions of dollars just to establish sufficient infrastructure to get to and from the sites, never mind actually drilling.

Essential data packages for blocks in which companies have an interest cost between $30,000 and $250,000 in the second round of bidding. Information on all 26 sites would have cost $1.3 million.

Fields in Xinjiang have so for pumped 134 million tons of oil and are expected to produce more than 13 million tons this year. China says the Tarim, Junggar and Turpan-Hami Basins have oil reserves of 1.8 billion tons and gas reserves of 5.6 trillion cubic feet.