Sinopec May Suspend Argentina Output

BUENOS AIRES--China Petrochemical Corp. (SNP, 600028.SH), or Sinopec Group, is so concerned about oil industry policy in Argentina that it could suspend production there, a local newspaper with close ties to the government reported Tuesday.

The Chinese company, which in late 2010 decided to pay $2.45 billion for Occidental Petroleum Corp.'s (OXY) unit in Argentina, is the country's fourth-largest producer.

At the time, Asia's biggest refiner said the deal would raise its production by over 51,000 barrels of oil equivalent a day and give it access to proven and probable reserves totaling 393 million barrels.

Since then, however, Argentina's government has changed the rules for oil and gas companies. In February, it dropped its "Oil and Refining Plus" programs that aimed to encourage new investment in the exploration, production and refining of hydrocarbons.

Ending the programs saved the government about 2 billion pesos ($4.33 million) a year, but it cost oil companies the same amount. Since 2008, the government had paid out about ARS10 billion through the programs.

According to the report in the daily Buenos Aires Economico, Sinopec has asked the government for overdue compensation totaling $184 million and said the government's failure to properly compensate it has caused financial problems for Sinopec.

The company reportedly told government officials that the situation "could worsen drastically in the weeks ahead" and that if the problem isn't reversed soon, Sinopec could face trouble paying its service providers and employees.

A Sinopec spokesman in Buenos Aires couldn't be reached for comment. A spokesman for Argentina's Planning Ministry, which oversees the energy industry, didn't immediately respond to phone calls and an email.

Write to Taos Turner at [e-mail]

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