Yanchang Petroleum Initiates Expansion Strategy     

Shaanxi Yanchang Petroleum (Group) Co., Ltd. (Yanchang Petroleum), the fourth largest oil producer in China, has started a massive business expansion program.
   Senior officials say Yanchang Petroleum aims to buy 17 companies, including three research institutions, and one salt mine. That means the company, an original oil producer and refiner, is transferring it into integrated oil, natural gas, coal and salt businesses.
   On November 3rd, Yanchang Petroleum and Shenhua Group formed a 49 : 51 joint venture, Shaanxi Shenyan Coal Co., Ltd. The venture, with total investment of RMB4.8 billion, will engage in coal mining, washing and processing, sales and related businesses, and will supply raw coal and fuel to Shenhua and Yanchang Petroleum's coal conversion projects.
   Yanchang Petroleum also tapped the oil retail market by forming a 46 : 45 : 9 joint venture with Shell Sichuan and Shaanxi Tianli Investment Co., Ltd. in September 2009. Shaanxi Tianli is controlled by Yanchang Petroleum. This joint venture plans to build 100 new gas stations in Sichuan province over three years to ease supply shortage.
   It is understood the jv Yanchang Shell will adopt a flexible pricing strategy to meet customers' needs, rivaling China National Petroleum Corp and Sinopec Group. The venture also plans to acquire Shell Chongqing and enter other provinces' oil market.
   Meanwhile, Yanchang is investing in lots of auxiliary industries such as hotel and tourism.
   A Yanchang official, who requested anonymity, said the company is diversifying because it fears business could not be sustainable if only relying on petroleum. Yanchang Petroleum's fields are in the Erdos Basin, with registered exploration and production area covering only a bit more than 10 000 square kilometers, or only 4.28% of the whole basin. And the field containing oil only accounts for a quarter of its registered area.
   The official said Yanchang Petroleum's petroleum business is mainly confined to northern Shaanxi. Though it has been exploring in Inner Mongolia for nearly a decade, it only extracted about less than 100 000 tons a year. Still, diversifying its business for Yanchang Petroleum is not at the expense of sacrificing investment in oil exploration and production. A stable oil production is top of the company's agenda, the official said.