MOFCOM Approval for Sino-Foreign Cooperative Petroleum Contracts in China No Longer Required

Last week on May 15, 2013, China’s State Council published a decision to further eliminate certain administrative examination and approval items《国务院关于取消和下放一批行政审批项目等事项的决定》(国发(2013)19号) (the “Decision”). According to the Decision, certain items (including projects, activities, organizations and other similar matters) which previously required central government approval now no longer require such approval.

What this means for foreign oil companies (“IOCs”) is that approval from the Ministry of Commerce (“MOFCOM”) for contracts such as petroleum agreements, production sharing contracts, etc. (“Petroleum Contracts”) is no longer required. This has the potential of reducing the number of days spent on future transactions by up to 40 days (previously, this was the number of days needed to obtain MOFCOM approval for such projects). Nevertheless, the requirement for examination and approval of IOCs who bid for such contracts still remains.

Background

Currently, only certain IOCs are permitted to enter into contracts with Chinese oil companies (such as CNPC, Sinopec, CNOOC and CUCBM) for the purposes of developing onshore and offshore petroleum and coal bed methane resources in China. Generally speaking, all such development projects are put out for tender and an IOC is usually required to submit a bid to enter into a Petroleum Contract with the relevant Chinese oil company.

Before the Decision

An executed Petroleum Contract previously had to be approved by MOFCOM. The approval process could take up to 40 days in total.

Now

There is no longer a requirement to obtain MOFCOM approval for Petroleum Contracts. Accordingly, once the Petroleum Contract is negotiated and executed by the parties, it will not require any further approval. However, an IOC must still be qualified to enter into a Petroleum Contract with the relevant Chinese oil company for the purposes of developing petroleum resources in China.

Practical Effects and Observations

Although the practical effects of the Decision remain to be seen, the Decision theoretically may:

  • simplify the application process for IOCs that want to conduct petroleum operations in China (particularly for those IOCs that have already been qualified for this purpose);
  • reduce the overall transaction time by up to 40 days; and
  • add more certainty to the overall application process and future petroleum transactions for IOCs.

The Decision is part of a series of amendments to the State Council Decree No. 606 and No. 607 (2011) 《中华人民共和国对外合作开采陆上石油资源条例》and《中华人民共和国对外合作开采海洋石油资源条例》relating to the Sino-foreign cooperative exploitation of onshore and offshore petroleum resources. Since August 2012, a total of 502 items have been identified as no longer requiring central government approval.