Hunting for oil in Chinese waters

The people of Zhanjiang, China, first learned about the arrival of many foreigners -- and the oil discovery --when they saw the new Suzuki trucks parked by the Friendship Store.

Today, after decades of sheltered living behind Chairman Mao's great wall of isolation, the Chinese in Zhanjiang are watching, somewhat stunned, as their quiet fishing harbor on the South China Sea hurricanes into an oil boomtown.

Zhanjiang has been decreed by the Peking authorities as the operations base for nearly 31 Western oil companies that expect to start offshore exploration in the South China sea sometime this winter.

The Chinese have already let in Japanese and French government oil firms. And on Feb. 13, Total of France became the first foreign company to find oil offshore china. Total made the oil strike in the Gulf of Tonkin, near disputed Sino-Vietnamese waters.

Total and the Japanese National Oil Co. got the jump on the major Western oil companies in China, one US executive said, because "they're interested in securing crude supplies, not in profit, the way we are."

Although new to the oil game, the Chinese have shown themselves to be fast learners when dealing with the multinationals. So fast, in fact, that their tough bargaining stance has cooled some of the Western oil companies' initial interest in China. Negotiations between the Peking government and US and European companies have dragged out for two years, and may continue until November 1981, petroleum industry sources say.

In a move that makes the Organization of Petroleum Exporting Countries look like a charity fund by comparison, China cajoled Phillips, a joint Chevron-Texaco venture, Exxon, Mobil, and Amoco into shooting seismic tests --the speed at which sound waves travel through rock strata --ies carried out these tests absolutely free of charge, Peking later refused to grant them preferential status in the coming free-for-all auction of offshore acreage.

The oil majors are also puzzled by China's red-carpet treatment of Atlantic Richfield Corp. of Los Angeles. Sources close to the state-run China Petroleum Corp. said ARCO may receive exploration rights "within the next few weeks" to the area south of Hainan (near Total's oil discovery). The foreign oil companies are dreading the free-for-all auction and many gripe about ARCO's good fortune: for unknown reasons, ARCO is the only private oil company expected to obtain a drilling contract before the bidding.

In addition ARCO's a seismic data were kept strictly confidential, while geological tests run by the other 30 multinational companies will be made public by the Chinese. An ARCO spokesman in Los Angeles refused to discuss the matter until China signs the contract. However, reliable industry sources claim that ARCO's involvement in China dates back to former President Richard Nixon's 1972 trip to Peking. They said senior ARCO officials accompanying the Nixon delegation used the opportunity to open negotiations with Chinese Oil Military officials.

Even if commercial quantities are found offshore, oilmen doubt that China can be counted on the replace the US's volatile Middle Eastern suppliers. Hong Kong-based petroleum experts say that a drop in China's current production, rising fuel demands within the heavily populated country, and delays in offshore production will keep China away from the international market until after 1985. And even then, industry experts claim, China does not have the capacity to assert itself as a world oil power.

Hunting for oil in Chinese waters also has its hazards. Last winter, Western seismic vessels needed weapons to repel pirates, who often cruise the South China Sea posing as boatloads of foundering Vietnamese refugees. At least three companies -- AMOCO, Total, and ARCO -- conducted exploration work with a Chinese coast guard escort. Their operations were in parts of the Tonkin Gulf also claimed by the hostile Vietnamese.

American drillers arriving in Zhanjiang, 150 miles north of the Vietnamese border, said the trip was like entering a time warp. Most of the vessels berthed in Zhanjiang Harbor are fishing junks with torn red sails. There is little refrigeration at the port, and the fishermen keep their catch -- water snakes, king prawns, and delicious sea bass -- swimming in large wooden tubs.

Although China is generally technologically backward, the skills of its oil field workers, particularly the women, stunned visiting Westerners. One Texas driller recounted how he once handed an intricate piece of machinery to a toolpusher and quizzed her on it.

"Identify the machinery? Why, she'd even memorized the catalogue page number ," said the driller with amazement.