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Interview

with Sheng Ding, Chairman, Society of Petroleum Engineers – China

07.02.2012 / Energyboardroom

Mr. Ding, you are a Texas A&M petroleum graduate, and have had an interesting career that most recently has included managing Newfield’s China operations and heading the China chapter of the SPE. Can you please begin by giving our readers some more in-depth insight into your career trajectory to date?

After graduating from the university in the USA, the first position I took was with Shell. It was a job in New Orleans with Shell offshore. At that time—we are speaking of the early 90s—the reason I chose Shell, and offshore, was that offshore technology was newly emerging and I was very interested in working in such a high-tech field. Shell was the offshore leader back then.

Shell’s assignment really provided me with a wealth of excellent training. I had the opportunity to do a rotation every couple of years within the company. I experienced exploration, appraisal, development, production, and even worked in a research lab. Shell also sponsored me in a MBA school, where I received some exposure to finance and the commercial component.

After I graduated with a MBA degree, I wanted to be given an international assignment. However, at that time, Shell U.S.A. was essentially a separate company from Shell Royal Dutch. It was therefore difficult to get posted internationally.

I had a friend at Enron Oil & Gas, who had been a manager at Shell. He once heard me give a talk before a society in Houston, and afterwards he approached me and told me that he had been looking for someone to take an international position. So I went to Enron.

I worked for a few years on international E&P, mainly in South America. I worked in China as well, because Enron owned an asset in Sichuan Basin. After my work in Enron’s E&P company, I was transferred to Enron Finance as an underwriting/deal-structuring manager. My task was to evaluate assets and work with the due diligence team with the aim of structuring a deal. It was a fun job, for a short while!

I then received a call from El Paso Production Company. I joined them as a principal reservoir engineer, and chief petrophysicist. They too gave me an opportunity to work both in the U.S. and internationally.

Subsequently, I received another headhunting phone call—this time convincing me to join Newfield. It was in 2005, there were some issues with their joint operation agreement in a Bohai property. I had been in the technology department, but was asked to help with the negotiations. I agreed, and came to China. I had planned to stay for one week; the negotiation, however, lasted just a few hours. I then went to CNOOC to speak with some friends of mine, and asked if they could send me some information regarding their open blocks. They provided me with some CDs describing some very interesting opportunities.

I took a look, and focused on two blocks that I really liked in the South China Sea. I went back and spoke with head of the international, and presented these two blocks to him. He remarked that he did not really have people to work on these assets. At the time, China was not one of the company’s strategic countries—nonetheless, some months later, I was informed that the company had hired a few people for the possible project. They asked me to lead the team for a data room visit.

This was September 2005. Along with two other staff, I visited the data room, and, sure enough, they too liked the blocks. We needed a reservoir engineer, and people to deal with negotiations and the economics of the project. The head of international operations said to me, “Why don’t you do it?” I then became reservoir engineer and petro-physicist on the project; I made the economics model and did the negotiations! I remember clearly: this was during the Thanksgiving holiday of 2005, and I took a week off in the U.S. I was off during the daytime, and during the nighttime, I was negotiating with CNOOC in China.

CNOOC told us they were ready to strike an agreement on December 1st of 2005. In a few hours, we finalized the deal and signed a contract for two blocks on December 12th. On one of these blocks, the company actually has two discoveries under development. The company relinquished the other block—mainly, I believe, due to the financial crisis and the risk-averse environment.

With the combination of technical, commercial, and management skills and hands-on experiences acquired in over 20 years’ international E&P value chains, and to fully and efficiently utilize resources, I have started my own company, PetroBroad Limited. PetroBroad is an exploration, exploitation and production company that is focused on the selected proven mature high impact offshore and onshore basins in Asia (especially China), USA, and Canada. I believe that there are plenty of quality oil and gas assets, plenty of financial capital that wants to invest in the quality assets, and plenty of talented people that want to work on the quality assets. But, there are gaps between them. PetroBroad bridges the gaps. Petrobroad will also help enhance and extend existing conventional and unconventional hydro-carbon plays and to participate in emerging unconventional resource trend. PetroBroad will identify and acquire assets and consolidate them into scalability and repeatability through the application of proven geophysical/geological, and well drilling & completion technologies. PetroBroad provides strategic links between quality assets, strategic partners, and strong capital funding.

As far as the SPE, it feels like I have been with the organization my whole professional life! I cannot remember when I joined. However, I can tell you that throughout my career, I always paid attention to various societies. I was formerly president of the SPWLA in New Orleans and technical editor for SPE formation evaluation journal. I have done many talks for both the SPWLA and the SPE.

When I moved to China, I always had an intention to integrate the international community with the local community. This was an area that I saw required improvement, to the benefit of both IOCs and NOCs. We initiated a number of activities that involved students, national oil companies, and IOCs. I was, for a time, Director At Large for the SPE organization here. When the former Chairman of the China chapter left, he nominated me as his successor. I said that I would be glad to take the position, and have focused mainly on the integration issue since.

What elements do you feel are lacking in the integration between foreign and domestic communities in the Chinese oil & gas industry?

I think trust, respect, and understanding are lacking—especially cultural understanding, including corporate culture. Misunderstandings are frequent, and language is certainly an issue as well.

An extra effort must be made to bring Chinese and international groups together—because once they come together, they realize that there can be a lot of benefit in cooperation. This is true from both technical and commercial standpoints: best practices are shared; technology is transferred. University training for younger professionals can also benefit from integration. Some years ago, I looked into the number of petroleum graduates from China, and the number is many times the rate in the U.S. However, I am currently a guest professor at China University of Petroleum, where I am teaching E&P economics and decision-making—the reason I selected this course was because I believe that while technically, Chinese students are very sharp, what the students really need is business sense. Anything we do in our field, we have to look at the economics! In my classes, I share real-life examples that are easily understandable. I try to invite two or three CEOs, from both national and international E&P companies, to speak to the students each semester.

The SPE also gets involved with the university; our global Chairman came to visit the students and we held a small SPE-sponsored session. We try to provide services not only to the experienced members of the industry, but look toward the future as well.

Let’s consider the opportunities for these students when they graduate. You mentioned that your first job in this industry was working for Shell in offshore, and that you found it very interesting to work on what was then the cutting edge in the U.S. China now mirrors the trends that developed in the Gulf of Mexico and in shale gas some years ago in America. What opportunities have been created by China’s 12th 5-Year Plan for petroleum engineers working in the region, and what do you believe will be the main changes that will drive this industry over these five years?

Overall, the driving factor is economic growth in China. Even though there are many uncertainties in the world right now given the financial crisis, the business cycle has ups and downs and I believe things could pick up very quickly in the next few years. This will mean increased oil and gas consumption.

Back in 2007, China already imported over 50% of its oil. Every country looks to its own backyard to see how it can produce as much as possible domestically, at an economical cost. In China, there are many hydrocarbon-rich basins, both offshore and onshore. And if we look at offshore, I think it is accurate to compare it to the Gulf of Mexico. In the Gulf, people have been producing for the last 60 years, and there remains much deepwater potential. In the South China Sea, Bohai Bay, the East China Sea—we have only been at work for 20 years. There is a lot of running room: in shallow water and especially in deep water.

In unconventionals, we are just at the starting point. There is not a single commercial shale gas production in China. I actually started the first China shale gas joint venture between an international player and a NOC (PetroChina) to evaluate and document the Sichuan Basin. From what I understand, the shale gas potential in this country is huge. Of course, we still do not know conclusively—because we are at the early stages. Nobody has yet done systematic work to pool all the data. Nonetheless, the bottom line is that things are looking good.

I think the future, therefore, looks very good for the young generations. I think they really have brilliant prospects to work in China—and, of course, the rest of the world as well. They will have a lot of work to do.

How have you seen engineers working in China address the technical challenge of working in fields that are completely new in this country, such as unconventionals and deep water?

The key word is experience. I think technically, they have the capability to do it; it is in the application that there are gaps. They do need help in both deepwater and unconventionals—especially in drilling and completion. But the Chinese are quick learners!

One of the things I discovered after having worked both here and in the U.S. is that the Chinese education system trains people very well in terms of depth. However, in terms of broadening their perspective, Chinese educators are not doing enough. I think that is a necessary improvement in the education paradigm.

I was recently speaking to the president of the University of Petroleum, and I suggested to him that I thought we needed more professors with industry experience. And not just domestically—international experience as well. That way, they can influence students to do more than study their derivative equations to death. Rather, students should try to understand something outside of their narrow discipline. Say they study petroleum engineering: they should also obtain an understanding of how geological and seismic data are gathered, all the way through to the surface facility, and the economics of a project. A great deal of value can be derived from cross-discipline. In fact, in my experience, it is easier to get value from a cross-disciplinary approach, because people tend to very easily fall too deeply into their own subject if they are not exposed to other things. Integration and leadership are essential in challenging problem solving in E&P.

Lacking elements in the education system also affect the competitiveness of this country globally.

Absolutely! This is why I spend a lot of time in the universities.

What is on the agenda of the SPE in China for the coming year?

The coming year will be very interesting. We have just spoken about integration and cross-disciplinary approaches—and we are quite focused on these issues at the SPE, as well. We are focusing on broad topics like ‘How to do business in China,’ and sharing experiences.

Everyone has the common knowledge that trust and relationship are the key words in China. However, when it comes to practice, it is immediately clear that there is a huge difference in terms of how people of Chinese and Western culture approach each other. For example, Western people tend to be very straightforward: black and white. The Chinese, or those of Eastern culture generally, tend to have a ‘we can work things out by sitting down together’ approach. Westerners tend to draw conclusions very quickly; Chinese tend to say, ‘hold on, things may not be as they seem.’ I have seen Westerners and Chinese hold meetings, and it seems people can walk out of the same room with completely different conclusions! Some people will believe that they reached an agreement; others will believe that they did not.

In China, you have to work with all levels of an organization to build rapport, instead of just hitting at the top. You must hit at the top—in this culture that is very important—but you must work your way down, as well, and work with mid-level and technical-level people. Trust and respect are major issues.

When I was at the previous company, I organized diversity training for about 70-80 people in Zhuhai, and we spoke about these challenges. It was very interesting—the facilitator asked the big group to form smaller groups, and the people from different regions banded together. They listed the core values of their culture, and each group then presented their values. People began to comprehend why we have misunderstandings and trust issues when we work together.

I think foreign businesses fail in China, for the most part, because of a lack of cultural sensitivity. Working in a particular country, you must understand how the locals do business. The Chinese will also rarely come out and tell you that you did something incorrectly—and that makes things even more difficult.

What is your final message to the international readers of Oil & gas Financial Journal?

I think that it is an exciting time for our industry. With the trends toward deep water and shale, we are in a good position. Shale gas in particular appears to be one of the most practical energy sources to resolve future energy shortages. I think we should put a great deal of effort behind shale gas and shale oil, and behind all of what we call ‘unconventional’ resources.

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