CPC's deal with Chad to go ahead

State-run Chinese Petroleum Corp's (CPC, 中油) oil exploration projects in Chad remain intact after Taiwan severed diplomatic ties with the African country late on Saturday night, the company said yesterday.

"Oil exploration is a commercial activity and will not be affected by this political incident," Chen Bao-lang (陳寶郎), president of the nation's largest oil refiner, said in a telephone interview yesterday.

CPC will be able to handle the situation as it has abundant experience doing oil exploration in countries with which Taiwan has no diplomatic relations, Chen said.

The outlook for the Chad investment appears positive, as an adjacent oil field explored by a Canadian rival has reserves equivalent to up to 200 million barrels of crude oil and liqid natural gas, according to the executive.

Taiwan announced it had cut diplomatic ties with Chad late on Saturday night, after the African nation recognized China.

The nation's diplomatic setback sparked concerns over the possible impact on CPC's investments in Chad.

The company signed a US$17 million four-year contract for the exclusive rights to explore three oil fields covering 26,000km2, or two-thirds the area of Taiwan, in the country in January.

The entire project in Chad could cost up to US$30 million. CPC has earmarked US$4.95 million for the project this year, the oil refiner said in a statement posted on the Ministry of Economic Affairs' Web site yesterday.

CPC has engaged in foreign oil exploration in recent years. The company said in May that it planned to pour NT$8.3 billion (US$252.5 million) into overseas oil exploration over the next five years to boost supplies in the face of soaring crude prices.

The refiner is also exploring fields in Ecuador, Indonesia, Venezuela and the US, Chen said.

Oil fields in Australia will start mass production within the next two years, he added.

The company estimates that the results of its overseas oil exploration efforts could contribute around NT$30 billion in profits in the future.

Skyrocketing crude oil prices have dragged CPC into the red. The company reported a deficit of NT$22.4 billion for the first seven months of this year.

Chen, however, remained tightlipped about any possible markups in gasoline prices to address the losses.

Gas prices have been raised three times this year.

CPC has proposed adopting a floating pricing mechanism to reflect fluctuating crude oil costs but has not received a positive response from the ministry.

The company may continue to promote the system to incoming minister of economic affairs Steve Chen (陳瑞隆), in the hope of curbing losses, he said.