China - Zhongyuan - Wenliu Petroleum Project

Document of The World Bank FOR OFICIAL USE ONLY Report No. 11417 PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (LOAN 2252-CHA) DECEKBER 10, 1992 Industry and Energy Operations Division Country Department II East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ABBREVIATIONS AND ACRONYMS CNOOC China National Offshore Oil Corporation CNPC China National Petroleum Corporation CNTIC China National Technical Import Corporation COCOM Coordination Committee for Multilateral Export Control DPAB Daqing Petroleum Administrative Bureau EOR Enhanced Oil Recovery GMC Gas Management Company GOC Government of the People's Republic of China ITC International Tendering Company of CNTIC LPG Liquified Petroleum Gas MIS Management Information System MOF Ministry of Finance MOPI Ministry of Petroleum Industry NGL Natural Gas Liquids PCR Project Completion Report SPC State Planning Commission ZPEB Zhongyuan Petroleum Exploration Bureau WEIGHTS AND MEASURES 1 cubic meter (CM) = 35.3 cubic feet (CF) 1 thousand cubic meters (MCM) = 35.3 MCF 1 million cubic meters (MMCM) = 35.3 MMCF 1 billion cubic meters (BCM) = 35.3 BCF 1 thousand cubic meters of natural gas = 9.31 million kilocalories 1 ton oil equivalent (TOE) = 10.2 million kilocalories 1 barrel (bbl) 0.85 SG crude oil = 0.135 tons = 0.159 CM = 42 US gallons 1 kilogram coal equivalent (KGCE) - 0.64 kg oil equivalent (KGOE) CURRENCY EQUIVALENTS Currency Unit - Yuan (Y) Appraisal (Sept 1982) $1.0 = Y 1.9 1990 $1.0 = Y 5.23 FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation December 10, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on China Zhonavuan-Wenliu Petroleum Proiect (Loan 2252-CHA) Attached, for information, is a copy of the report entitled "China - Zhongyuan-Wenliu Petroleum Project (Loan 2252-CHA)" prepared by the East Asia and Pacific Regional Office with Part II contributed by the Borrower. The project achieved its main objectives and is rated as satisfactory. Its sustainability is rated as likely. Transfer of technology through the import of modern equipment and overseas training has taken place. Additional oil reserves were discovered, gas by-products are being used instead of being flared and oil production has increased. The project completion took four years longer than planned, largely due to lack of experience in implementing petroleum projects in China. While the original schedule was over-optimistic, more expeditious implementation would have obtained had procurement and project management matters been delegated to the implementing agency. The PCR is comprehensive and informative. The project is scheduled for audit in 1993, together with three other petroleum projects. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CHA) TABLE OF CONTENTS Pate No. Preface ................ ... li Evaluation Summary ................ . . iii PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . Project Identity . . . . . . . . . . . . . . . . . . . . . . . .1 Background ...1 Project Objectives and Description . . . . . . . . . . . . . . . Project Design and Organization.. . 2 Project Implementation . . . . . . . . . . . . . . . 3 Project Results . . . . . . . . . . . . . . . . . . . . . . . . . 4 Project Sustainability . . . . . . . . . . . . . . . . . . . . . 9 Bank Performance... 9 Borrower's Performance ...10 Project Relationship . . . . . . . . . . . . . . . . . . . . . . 10 Consulting Services ...10 Project Documentation and Data . . . . . . . . . . . . . . . . . 10 PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . . 11 PART III STATISTICAL INPORMATION.. .. . 14 Related Bank Loans . . . . . . . . . . . . .14 Project Timetable . . . . . . . . . . . . . . . . . . . . . . . . 14 Cumulative Estimated and Actual ... .14 Project Implementation . . . . . . . . . . . . . . . . . . . . . 15 Project Costs and Financing.. . . . . . . . . 17 Project Results . . . . . . . . . . . . . . . . . . . . . . . . . 18 Status of Covenants ... 19 Use of Bank Resources . . . . . . . . . . . . . . . . . . . . . . 24 ANNEXES 1. Economic Analysis . . . . . . . . . . . . . . . . . . . . . . . 25 2. Financial Analysis.. . .. . .. . . .. 27 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  a I  PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CHA) PREFACE This is the Project Completion Report (PCR) for the Zhongyuan-Wenliu Petroleum Project in China, for which Loan 2252-CHA in the amount of US$100.8 million equivalent was approved on March 29, 1983. The loan was closed, after four one year extensions of the closing date, on December 31, 1990. The last disbursement was made on May 3, 1991. The undisbursed amount of US$4,210,272.52 equivalent was canceled. The PCR was jointly prepared by the Industry and Energy Division of Country Department 2 of the East Asia and Pacific Regional Office (Preface, Evaluation, Summary, Parts I and III) and the Borrower (Part II). Preparation of this PCR was started during the Bank's PCR mission in May 1991, and is based, inter alia, on the Staff Appraisal Report; the Loan and Project Agreements; supervision reports, correspondence between the Bank and the Borrower; and internal Bank memoranda.   iii PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CHA) EVALUATION SUMMARY Oblectives The objectives of the project were to develop the oil production potential of the South Wenliu oilfield, to explore the oil production potential of the East Wenliu area, to recover liquified petroleum gas (LPG) from the associated gas, and to transfer technology with institution building to the Borrower's petroleum industry. (Part I, para. 1.1 to 1.4). Implementation Experience The project was successfully completed, achieving the main objectives. The actual project costs were close to appraisal estimates (Part III. Table 3.5) despite the delays and this was mainly due to cost over-estimates, lower than expected market prices of imported goods ' and exemption from duties and taxes. The Project completion was delayed by over four years. due to initial start up delays caused by the Zhongyuan Petroleum Exploration Bureau's (ZPEB) lack of experience of Bank procedures; difficulties in completing the procurement of equipment and acquisition of consulting services; inadequate institutional and management experience in the implementation of such projects; the fragmentation of responsibility between various Chinese agencies and their complex internal processing and clearance procedures; and an overly optimistic implementation schedule drawn up at appraisal due largely to the Bank's own lack of experience in the implementation of petroleum projects in China. (Part I, paras. 1.9 and 1.10). All the project components, with the exception of the reservoir engineering study, Management Information System (MIS) and installation of some training equipment, were completed by the closing date. The final phase of the South Wenliu reservoir study was not completed when the consultant went bankrupt. The MIS study was canceled at the request of ZPEB. The Bank's agreement was based on the financial constraints of the project and ZPEB at the time and the sustainability of the MIS due to ZPEB's limited absorptive capacity over the medium term. Furthermore, the other studies and training under the Project and other Bank activities were expected to contribute in enhancing ZPEB's managerial capacity. The training study was completed about two years later than expected, and as a result the installation of a drilling simulator and other equipment in the training center was also delayed. However, the project scope was expanded 11 Petroleum exploration and development activities worldwide had a downward trend in 1981-85, resulting in favorable prices for oilfield equipment and services.  iv in terms of additional wells using the new structural interpretation based on the 3-D seismic results. (Part I, para. 1.10). Results Although the main objectives were achieved, the targeted oil production rates were not always reached due mainly to the unexpectedly complex geology of the two oilfields. In the development of South Wenliu field, the annual oil production increased from 0.3 million tons in 1983 to a peak of 0.8 million tons in 1987, compared to the appraisal estimate of a peak of 1.0 million. Tho exploration and appraisal of the East Wenliu field, however led to the discovery of about 122 million tons of oil reserves compared to the 100 million tons estimated at appraisal. The development of the East Wenliu oilfield has compensated for the shortfall in South Wmnliu production. The construction of the LPG plant to process 1.0 million cubic meters (MMCM) of gas/day, and produce about 150 tons of LPG and 0.8 MMCM of dry gas daily was completed in 1990. The annual LPG production in 1990 was 12,500 tons, and output is expected to reach 52,800 tons in 1991. A transfer of technology was successfully achieved through the overseas training of 256 of ZPEB's professional staff, on the job training of technical staff in China provided by consultants and suppliers, and the introduction of modern oilfield equipment into the field operations. The modern equipment procured under the project for the computer center and laboratories resulted in a marked improvement in operational techniques which contributed towards the efficient appraisal and development of the South and East Wenliu fields. In spite of the delays in the procurement process, the modern equipment and techniques were effectively used in the oilfields in the later part of the project. The use of 3-D seismic field survey methods for the project consider- ably improved the understanding of the structure of the two fields. The modifications made in the appraisal and development plans for the fields as a result of these surveys helped to increase oil production and reduced costs through better well location (Part I, para. 1.12 and 1.25). Sustainability Although the proven oil reserves of the South Wenliu field were lower than the appraisal estimates, there was an upward revision of the oil reserves in the East Wenliu field, and the Zhongyuan area which includes several oil and gas fields in addition to the Wenliu fields has become significant in maintaining national oil production. The area is currently ranked fourth among the country's largest oil producers. ZPEB is continuing its efforts to increase oil recovery from the South Wenliu and East Wenliu fields by extending the use of the modern techniques introduced in the project. The additional LPG and other products being produced from the natural gas liquid extracted from the associated gas, which was previously being flared, will contribute significantly to ZPEB's economic benefits. The improved technology introduced under the project vill certainly continue to be used in the development of the whole area, and in oil and gas developments elsewhere in China. (Part I, paras. 1.36-1.37).  v Findines and Lessons Learned Several factors contributed to the early delays in project implemen- tation, viz: ZPEB's lack of familiarity with the Bank's procurement procedures and management of a complicated multi-faceted project, cumbersome internal processing and clearance procedures, and extended delays in contract nego- tiations. Unlike the offshore companies under China National Offshore Oil Corporation (CNOOC) who were allowed to procure goods/services directly, ZPEB had to procure after clearance by the China National Petroleum Corporation (CNPC), formerly the Ministry of Petroleum Industry (MOPI), and International Tendering Company (ITC) of China National Technical Import Corporation (CNTIC), and this slowed procurement throughout the project (Part I, par&. 1.7). In future projects in China arrangements should be made for the central authorities to delegate procurement to the local. implementing entity and, where possible, use should be made of the Chinese management personnel who have experience in Bank procedures. In this type of appraisal and development project, where the operational plan often needs modification depending on the early results, sufficient flexibility should be included in the original project design to allow for such modifications. In this project the Bank assisted the Borrower in making modifications in the project components, e.g., in the introduction of the waste water treatment study and the modified drilling program (Part I. paras. 1.4- 1.10). In retrospect, the Bank could have also helped by preparing focussed terms of reference during project preparation rather than leaving this to the supervision missions. It could also have agreed to a more realistic implementa- tion plan based on institutional conditions and taking into account centralized decision-making in China. In terms of achieving sustained benefits of activities initiated under the project, the importance of appropriate domestic pricing for oil and gas deserves further attention.   PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CHA) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE A. Prolect Identity Project Name : Zhongyuan-Wenliu Petroleum Project Loan Number : 2252-CHA RVP Unit East Asia and Pacific Regional Office Country s China Sector s Energy Subsector Petroleum B. Background 1.1 China's achievement in developing its energy resources in the past four decades has been impressive. In the petroleum sector, oil production increased from 0.1 million tons in 1950 to about 138 million tons in 1989. However, during the early 1980., after achieving a high production level in 1979, there was a decline in oil production from the existing fields. The Government of China (GOC) then increased its efforts to discover and develop new hydrocarbon resources. Initially, these efforts vere hampered by a lack of modern petroleum technology in both onshore and offshore operations. In the early 1980s, GOC requested Bank assistance in the development of the petroleum sector. The maintenance of a strong petroleum sector was considered to be of fundamental importance to the continued development of China's economy, and the Bank agreed to assist GOC. The Zhongyuan-Wenliu Petroleum Project was the second of five Bank projects in the petroleum sector, the first operation being the Daqing Oilfield-Gaotaizi Reservoir Development Project (Loan 2231-CHA) approved in 1983. In accordance with the Bank's current petroleum guidelines (OMS 3.82), the Bank will generally not in future participate in similar oil development projects without co-financing or the participation of the private sector. C. Proiect Oblectives and DescriDtion 1.2 The objectives of the project were to develop the oil production potential of the South Wenliu Oilfield, to explore and evaluate the oil production potential of the East Wenliu area, to extract LPG from the associated gas which was being flared, to ensure a transfer of technology and thereby enhance efficiency in exploration, production and gas processing and strengthen the institutional capabilities of Zhongyuan Petroleum Exploration Bureau (ZPEB) through staff training and the modernization of their oilfield operating practices.  2 1.3 The project comprised the following components: 3-D seismic field surveys and the processing and interpretation of the seismic data over an area of 100 km2 in the South and East Wenliu areas funded from the Daqing project; the development of the South Wenliu oilfield, including the drilling of 204 production and injection wells, construction of surface facilities, water and gas injection facilities, associated gas treatment and compression facilities, utilities and infrastructure; the exploration of the East Wenliu area by drilling 13 exploration and appraisal wells; natural gas liquids (NGL) recovery, including the construction of a plant and ancillary facilities to process 1 MMCMIday of associated gas which had previously been flared, to extract LPG and other products from the NGL; setting up of laboratories for core, oil, water and gas analyses, cement and mud testing; the establishment of a computer center for storing and processing technical, administrative and financial data; establishment of a center equipped with simulators, visual and other teaching aids for training skilled workers; import of oilfield equipment for drilling, logging, cementing, stimulation, well completions and workovers; the provision of technical assistance and six major technical studies. The technical studies comprised: (a) design of the LPG plant; (b) drilling and well completion practices; (c) reservoir study of the South Wenliu field; (d) oilfield safety practices; (e) MIS for ZPEB; and (f) the design of curricula and teaching methods for use in the Training Center. Provision was also made for possible pre-investment studies for other projects which might be identified in the petroleum sector for Bank financing. 1.4 However, the project scope had to be increased during implementation in an attempt to reach the production targets set for the area (para. 1.10). It was found that ZPEB was having problems in handling produced and reinjected water. At the Bank's suggestion, ZPEB agreed to include a water treatment study in the project to deal with water pollution and other problems relating to water flooding in the South Wenliu field. The MIS study was considered to be too expensive and unnecessary at that time, and was canceled at the request of ZPEB. The reservoir study of the South Wenliu field was stopped when the consultant went bankrupt. However, the study was later completed by ZPEB staff using the equipment and software provided by the consultant. D. Prolect Design and Organization 1.5 - The project was designed to respond to GOC's request for assistance in modernizing their petroleum sector. It was designed specifically to improve the capability of ZPEB to explore and develop the structurally complex Zhongyuan area, where the technical problems of appraisal and development drilling are much more difficult than in the Daqing area, the site of the first Bank-assisted oil project. ZPEB had prepared the development program for the area and, after discussions with Bank staff, it was agreed that advanced 3-D seismic techniques would be used to define the geological structure of the fields. Deep drilling techniques suitable for drilling into high pressure formations were to be introduced. An LPG plant was to be built to treat the associated gas and produce LPG and other liquid products from the NGLs which had previously been flared. The project was innovative in that it introduced advanced technologies not then available in China, and it provided computer capacity and training in a local center set up under the project, to enable local staff to continue this work themselves.  - 3 - 1.6 The project was well prepared and it fitted well with the timing of ZPEB's plan to develop the area. The role of the operating companies was well defined, but the role of the central government organizations, particularly in procurement and awarding contracts, was greater and slower, than originally anticipated. 1.7 The difficulties in project implementation arose mainly from the slowness of the central authorities to make and implement decisions. Unlike the China National Offshore Oil Corporation (CNOOC) and its offshore operating unit, which were directly responsible for procuring Bank-financed goods/ services, ZPEB initiated procurement actions which had to be cleared through China National Petroleum Corporation (CNPC) and finalized by International Tendering Company/China National Technical Import Corporation (ITC/CNTIC). These bureaucratic procedures and the relative inexperience of ZPEB in project management adversely affected overall project implementation. E. Proiect Implementation 1.8 After four extensions of the closing date, the loan was closed on December 31, 1990. Although there were extended delays in the project imple- mentation, the project was successfully completed, achieving practically all targets anticipated at appraisal, with substantial cost underrun. 1.9 The main factors contributing to the delays in project completion were the slow preparation of bidding documents and technical specifications followed by delays in soliciting and evaluating bids. These were followed by protracted contract negotiations for both goods and services, and there were frequent changes in the scope of work of the consultant studies. During implementation, there was a lack of clear understanding between ZPEB and the consultants on the scope of the contracts. The construction of buildings by ZPEB for the laboratories, computer center, training center, and surface facilities was slower than planned. The expansion of project scope in the South and East Wenliu oilfield development to achieve the oil production and proven reserves targets required extra time. In retrospect, given the lack of experience of ZPEB in Bank-assisted projects, the implementation schedule anticipated at the time of appraisal was overly optimistic. The export restrictions imposed by the Coordination Committee for Multilateral Export Control (COCOM) caused long delays in the issuance of an export license for the computers. 1.10 The South Wenliu oilfield development, using the new structural interpretation based on the 3-D seismic results, required more wells to produce the many small fault blocks found in the field. A total of 354 wells were drilled compared to the 204 wells planned, and surface facilities had to be completed to handle production from the extra wells. The planned East Wenliu program of 6 exploration and 7 appraisal wells was completed successfully. It was followed by an appraisal and development drilling program of 293 wells to develop the field. The LPG Plant design, construction and commissioning was delayed by the slow start of the bidding process, and when the bids were received the specifications were modified, which necessitated rebidding. Based on the evaluation of the second round of bids, the turnkey contract for a 1 MMCM day capacity LPG plant was awarded. The construction commenced in February 1988 with target commissioning by October 1989.  - 4 - Although the construction and erection of the plant was completed, its commis- sioning encountered further delays and the plant was fully comissioned in March 1991 after a delay of about 18 months. The delay in commissioning the plant was due to fire damage sustained by 90 packages of equipment in the port of Xingang and the subsequent repair or reordering of damaged equipment; poor coordination and site management by the foreign prime contractor and local subcontractor contributed to the delays. F. Proiect Results 1.11 ZPEB was able to achieve the main project objectives of developing the South Wenliu oilfield, proving additional oil reserves in East Wenliu, and installing an LPG plant to recover products from the associated gas. The transfer of technology was achieved through the import of modern equipment and techniques and the related training given by the suppliers. Although the procurement delays affected the training process, the results of the technical assistance and training have been substantial. ZPEB's own capabilities and its ability to assist other petroleum organizations in China have been significantly enhanced. South Wenliu Oilfield 1.12 In 1987, ZPEB estimated the proven oil reserves at about 46 million tons compared to the 48 million tons estimated at appraisal. The annual oil production is given in the table below: OIL PRODUCTION PROFILE ('000 tons oil/year) Year 1983 1984 1985 1986 1987 1988 1989 1990 Oil Production 286 557 720 760 870 770 644 580 1.13 The oil production is lower than the appraisal estimates. The cumulative oil production by end 1990 was 5.2 million tons compared to the appraisal estimate of 6.4 million tons. East Wenliu Area 1.14 ZPEB's exploration strategy in East Wenliu was revised in the light of the 3-D seismic results which identified a large number of small complex fault blocks. The results of the 13 exploration and appraisal wells showed that the East Wenliu field contained significant oil reserves. ZPEB drilled 293 appraisal and development wells on the field and proved about 122 million tons of oil reserves, compared to the appraisal estimate of 100 million tons. The oil production from East Wenliu started in 1986. By end 1990, about 3.9 million tons of oil had been produced.  -5- Computer Center 1.15 A new computer center was constructed and equipped under the project providing capacity for: (a) 2-D and 3-D seismic data processing and interpretation; (b) reservoir engineering studies; (c) database management for oil field operations; and (d) a computer aided design system. ZPEB staff received both overseas and on-the-job training in computer operations, and have been successfully operating the computer center since 1988, providing services to ZPEB and to other oil fields in China. Seismic Surveys 1.16 As a result of acquiring, processing and interpreting 3-D seismic data over an area of about 200 km2 in South and East Wenliu, ZPEB's capabilities in seismic data acquisition, processing and interpretation have been greatly enhanced. The 3-D seismic interpretation resulted in a better sub-surface structural picture of the fault blocks in the two fields. The results were used to locate the development and water injection wells so as to maximize production. Laboratories 1.17 Modern laboratories for rocks and fluid analyses were set up and ZPEB staff were trained overseas at the supplier's facilities to operate and maintain the new equipment procured under the project. On-the-job training was provided by the suppliers specialists during the commissioning of the equipment. ZPEB has been using these facilities to gain a better understanding of the reservoir characteristics, and to ensure efficient reservoir management and enhanced oil recovery. Drilling and Well Completion Study 1.18 The consultants reviewed the existing practices and the problems related to drilling through deep salt layers and made recommendations on the drilling techniques to be used. These recommendations were used successfully to drill a deep well under specialist supervision. ZPEB later used the techniques learned to improve their own drilling performance from having no successful wells from five attempts between 1975 and 1981, to completing all the 120 wells drilled from 1986 to 1988 after the completion of the study. The drilling study was also translated into Chinese and distributed to other petroleum bureaus in China. LPG Design Study 1.19 This study assisted ZPEB in the design of the LPG plant in Zhongyuan and formed the basis for awarding a turnkey contract for the plant. During the study, ZPEB staff were provided with a general training in the design of gas processing plants by the consultants. Safetv Study 1.20 The study addressed the main safety issues in oilfield operations in the area. The recommendations made by the consultants were implemented by ZPEB. Between 1985 and 1990, the incidence of accidents was reduced from 0.3 percent to 0.1 percent. This study report was also translated into Chinese and has been provided to other petroleum entities in China.  -6- Trainina Study 1.21 The consultants designed the curricula for use in the training center. They trained Chinese teachers in Zhongyuan and overseas in the methodology of preparing such curricula and in the use of modern audio-visual teaching methods. The first building in the training center opened in September 1990 with 300 skilled workers being trained. Two more buildings opened in March 1991. The center will eventually be capable of training around 3,000 technical workers annually when fully operational. Water Treatment Studv 1.22 This study was not included in the project at appraisal. However, during supervision, Bank staff noted pollution and reinjection problems related to the use of produced water in water flooding in the field and suggested this study. The consultants reviewed the existing situation and made recommendations on injection water treatment and waste water disposal. Based on this study, ZPEB set up a modern water treatment facility which is operating satisfactorily. The training given to ZPEB staff, both overseas and in the field, has also proved useful in applying modern water treatment techniques in other oil fields. Reservoir Study 1.23 This study was delayed due to the bankruptcy of the consultant in 1988. At that time about 80 percent of the tasks had been completed. ZPEB staff had worked closely with the consultants in their home office and had been trained in the use of modern techniques of reservoir analysis. The software used during the study was transferred to ZPEB, and with the training they had been given, ZPEB staff using the new computer center facilities were able to complete the study. The techniques learned by ZPEB staff are currently being used to monitor reservoir performance in the South and East Wenliu oil fields, and to optimize production. Transfer of Technol oa 1.24 The transfer of technology was achieved by the supply of new equipment, the training of ZPEB staff in the use of the equipment which was provided by the suppliers, and the training of ZPEB staff during the consultant studies. ZPEB staff responded well to the training, and new equipment has been used very effectively in oilfield operations. The benefits of the modern technology have been spread by ZPEB to other oil fields where the services are being used. Training 1.25 During implementation of the contracts for consultancy services and for the supply of imported equipment, a total of 256 persons from ZPEB were trained overseas for a total of 790 man-months. The benefits of the transfer of technology in reservoir performance monitoring, well logging and testing, reservoir simulation, 3-D seismic data acquisition and processing, laboratory work and computer applications were demonstrated by the efficient use made of the equipment by ZPEB staff in the later part of project implementation. By the end of the project they were using the equipment and new techniques independently.  -7- Proiect Costs 1.26 The total financing requirement for this project mounted to $427.04 million equivalent, including a front end fes of $0.75 million as compared with the appraisal estimate of $499.80 million (Part III, Table 3.5). In RMB terms, the total coats amounted to Y 1,301.23 million and exceeded the appraisal estimate of Y 949.45 million by 37 percent. The cost overrun in RMB terms could be attributed to the increase in the project scope and the increased cost of buildings construction. However, these figures are affected by lower than expected inflation rates, exemption from import duties/taxes and 15 percent physical contingencies which were included in the appraisal estimates. The cost underrun of about 14 percent in US Dollar terms reflecto the impact of the significant devaluation of the RMB against the US Dollar.' Proiect Financing 1.27 A comparison of actual project financing with the appraisal estimates is given in Part III, Table 3.5. Under the loan, $96.8 million was onlent to ZPEB for the project, the remainder of the foreign exchange requirements amounting to $62.2 million were financed by ZPEB/CNPC through their own resources. The tubulars were centrally procured by CNPC (then MOPI) and provided to ZPEB against local curroncy payments. All local currency expenditures were financed from ZPEB's own resources. Disbursements 1.28 A comparison of actual disbursements with tho appraisal estimates is given in Part III, Table 3.3. The procurement and consequently the disbursements were delayed considerably. The closing data was *xtended by four years to complete the project. The costs of the imported goods and services $158.2 million were close to the appraisal estimate of $156.7 million. The Bank loan of $100.8 million was 96 percent disbursed and the remaining amount of $4.2 million was canceled. Loan Allocation 1.29 The original estimated and the actual loan allocation is given in Part III, Table 3.5. Unallocated funds were largely devoted to meeting the increased cost of the LPG plant and other equipment and materials to enhance the operational capacity of ZPEB. Economic Reevaluation 1.30 The quantifiable benefits of the project arise from the development of the South Wenliu and East Wenliu oil fields in the form of increased oil and gas production, and from the processing of the associated gas in the LPG plant. Around 1 MMCM of this associated gas is being processed to give about 150 tons/day of LPG and around 0.8 MMCM of dry gas. As a result of considerably lower world oil prices and lower production/recovery rates than originally anticipated, and a four year delay in the onset of benefits, the economic rate of return for the project is currently estimated at 49 percent compared with the appraisal estimate of 74 percent (Annex 1). Similarly and The exchange rate at project appraisal was $1 - Y 1.9 and at completion was $1 - Y 5.23.  -8- based on ZPEB's latest reserves estimates and projected production profile, the net present value of the project (at 12 percent discount rate) is now estimated at $156 million, as compared against the appraisal estimate of $942 million. Financial Performance 1.31 ZPEB's Finances. Salient features of ZPEB's finances over the period 1983-90 are summarized in Annex 2. Domestic oil prices remained considerably lower than international oil prices. The actual financial results for 1983-86 fell short of expectations mainly because the domestic oil and gas price increases as well as the oil production envisaged at the time of project appraisal did not materialize. The delay in completion of the LPG plant also contributed to ZPEB's financial results. 1.32 Despite a declining and fluctuating profitability, ZPEB's cash generation has remained satisfactory. Over the past five years, it has maintained an adequate or even high self-financing ratio of no less than 30 percent and a debt service coverage ratio of no less than 4 times. However, these traditional cash generation indicators for enterprises fail to reflect the broader issue of financing shortfalls for sector development. In the absence of remedial measures, including narrowing the gap between domestic and international oil prices and phasing out subsidized gas prices, the issue of financing constraints will become increasingly serious since operating and maintenance costs are increasing at a fast pace while production is already on the decline. 1.33 Since ZPEB is not operated on a typical commercial basis, its financial performance especially with regard to operating efficiency cannot be measured in the same manner as a commercially oriented enterprise, and the application of the Bank's normal financial covenants for revenue and/or cash generation is of limited significance. For these reasons, the conditionalities did not include any traditional financial performance covenant. Instead, the Bank's objective to promote prudent financial management was achieved through ZPEB's compliance with the financial covenant which required ZPEB preparing long-term financial planning, focusing on its trend of production costs, budget variance analysis, as well as its future investment program and related financing arrangements, and annually reviewing such plans with the Bank. 1.34 Proiect Finances. Domestic oil, LPG and gas prices are significantly lower than international prices. Based on the assumption that ZPEB's oil, gas, and LPG production levels and prices will be at the present level during the rest of the project life, the financial rate of return of the project is now estimated at 9.3 percent if the products from the project are priced at the above-quota prices and 0.5 percent if priced at average prices, as compared with the appraisal estimate of 14 percent (Annex 2). The low financial rate of return reflects mainly the fact that domestic prices are significantly lower than border prices. Environmental Impact and Safety 1.35 ZPEB paid due attention to environmental and water pollution considerations in the performance of the drilling, production and gas processing operations. The water treatment study was completed and new water treatment stations were built to treat the produced water. The oil separated  -9- from the water was blended with the produced oil, and the produced water was reinjected into the reservoir. Since the associated gas produced is sulfur free, it posed no environmental problems. Prior to the project, the safety arrangements in Zhongyuan were inadequate. ZPEB implemented the recommendations made by the consultants in the safety study, and as a result there was asignificant reduction in the number of accidents on the fields. The recommendations of the safety study are also being implemented by other petroleum organizations in China. G. Prolect Sustainability 1.36 Although the estimated reserves and oil production levels in South Wenliu are somewhat lower than the appraisal estimates, the increased reserves (22 percent over SAR estimates) in East Wenliu, and the prospects of finding additional reserves in the fault blocks in South East Wenliu are likely to increase future oil production in Zhongyuan. The Zhongyuan area includes several other oil fields and is currently ranked fourth in the oil production areas in China. ZPEB aims to optimize ultimate recovery from the area by applying modern reservoir monitoring techniques and using 3-D seismic methods, deep production in-fill wells, water flooding and other secondary recovery methods to maintain oil production. The additional high value products (e.g., ethane, propane, butane, and gasoline) recovered from the associated gas should enhance ZPEB's future revenues. 1.37 In view of the importance of maintaining and developing this oil and gas producing area and the success of the methods introduced, it is reasonable to expect that the project results will continue to be used, and where possible further developed. H. Bank Performance 1.38 As in the case of the Daqing Project, the Bank contributed significantly in technology transfer and institution building under this project. Bank staff worked closely with ZPEB in designing the technical assistance and training components and modifying the project design where necessary to achieve the project objectives. They assisted ZPEB with the procurement and mobilization of the consultants. During project supervision Bank staff exchanged views on technical and implementation aspects and assisted ZPEB in resolving the problems as they arose. In general, the Bank performed well; however, in retrospect, the Bank could have assisted in reducing implementation delays for procurement of goods and consultancy services by assisting in preparing the bidding documents and more focussed terms of reference for the studies during the project preparation and appraisal phase, rather than leaving this until project implementation. I. Borrower's Performance 1.39 Extended delays in procurement and the implementation of the physical components of the project occurred due to the relative inexperience of ZPEB in the management of a comprehensive multi-faceted project. ZPEB formed a special unit for this project which facilitated the coordination and monitoring of the implementation and reporting aspects. Further, in spite of the expansion of project scope, close monitoring and control of the budget contributed to the completion of the project within the budget. ZPEB worked well towards achieving the project objectives of technology transfer, training and induction of modern equipment in its operation.  - 10 - J. Proiect RelationshiR 1.40 The Bank and ZPEB developed and maintained a good working relationship during project implementation. K. Consultant Services 1.41 The consultants played a major role in the success of the project. With one exception (para. 1.23), they performed well. Their work and recommendations were greatly appreciated by ZPEB. The training of local staff by the consultants, contractors and equipment suppliers was generally very good. ZPEB staff gained valuable experience while working with the consultants, both in China and in the consultants home offices. L. Proiect Documentation and Data 1.42 The Staff Appraisal Report and Loan Documents proved adequate in project implementation. Supervision reports proved useful in the review of the progress of the projects. ZPEB's detailed and comprehensive report which was contributed for inclusion as Part II of this PCR and the other data provided by ZPEB were very useful in preparing the PCR. Because of the length and detail of the ZPEB report, the text has been summarized for inclusion as Part II of this PCR, and the data given in the tables has been used in compiling the tables in Part III. A copy of the full ZPEB report is included in the project file.  PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CRA) PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 2.1 The final outcome of the project was highly successful. The early stages of the exploration and development of the Zhongyuan fields had been difficult due to the complex geological structure, and the lack of modern techniques and equipment needed to solve the problems. The Chinese Gov-rnment decided to request World Bank assistance and a loan to fund the project. Following discussions between ZPEB and the Bank a project was designed based on the ZPEB plan for the development of the South Wenliu oilfield, the exploration and appraisal of the East Wenliu area, and the design and construction of a gas processing plant to use the associated gas being produced with the oil. New oilfield equipment was to be purchased and training provided in the use of the equipment. Technical assistance was to be provided and six technical studies carried out using overseas contractors working with ZPEB staff. The targets set in the appraisal report were generally achieved, and helped by the project. Zhongyuan has become one of China's modern oil fields contributing significantly to the national output of oil. 2.2 The total cost of the project was Y 1,251.3 million, made up of Y 692.0 million local expenditure and $158.9 million foreign exchange of which $96.6 million was provided by the World Bank loan and $62.3 million by the Chinese Government. In addition $6.3 million for the 3-D seismic survey was provided from the Daqing Gaotaizi Development Project. Proiect Achievements 2.3 The project objectives have been largely achieved in the development of the South Wenliu field and the exploration and appraisal of the East Wenliu field, the utilization of the associated gas which vas being flared, and the building of ZPEB's institutions and training facilities. In the South Wenliu area, 354 wells were drilled and 47.8 million tons of oil have been proven. In 1987, 800,000 tons of oil and 134 million CM of gas were produced. In East Wenliu, following the exploration drilling and the development of the field, proven roserves of 122 million tons of oil have been found. The LPG plant capable of processing 1.2 million CM of associated gas was put into operation on October 14, 1990. Laboratories and the computer center have been set up and a training center has been established. A transfer of technology has taken place through the supply of modern equipment and materials, and providing on the job training in their use, and through the training of a total of 256 ZPEB staff, who spent around 790 man-months abroad, in the manufacture and use of the equipment supplied under the project. The continuing training of ZPEB's staff has been assured by the building of a This is a sumary of a very comprehensive completion report by the executive unit of the Zhongyuan Petroleum Exploration Bureau. A copy-of the complete ZPEB report, dated March 31, 1991, is included in-the project file.  - 12 - comprehensive technical training facility capable of training 3,000 skilled workers annually in Zhongyuan. Of the six technical studies planned under the project, viz., (a) design of the LPG plant, (b) drilling and completion practices, (c) reservoir engineering of the South Wenliu field, (d) teaching methods and curricular, (e) management Information System, and (f) oilfield safety practices--four were completed and a seventh study was added. 2.4 The MIS study was canceled at the request of ZPEB, and with the agreement of the Bank. An injection water treatment study was added during implementation when it was found that untreated water was causing reduced injectivity and corrosion problems in the wells. The results of the studies are summarized below. The design of the plant was completed successfully, and in October 1990, the plant was commissioned albeit with a five year delay. The drilling study was completed in three phases: (a) the study phase which began with the collection of data in December 1984, and ended in September 1985 with the final review meeting; (b) operations, which began when the well PS 9 was spudded in May 1986 and ended in November 1987 when the well was completed; and (c) the training phase when eleven engineers went to France for training at the consultants headquarters. The drilling study was very successful and resulted in improved drilling performance, reduced drilling timers, and success in drilling in the difficult conditions in East Wenliu. In that area between 1975 to 1981, five wells were attempted but all failed. After the study, between 1986 to 1988, one hundred twenty wells were drilled and successfully completed in East Wenliu, in * 100 percent successful program. 2.5 The reservoir engineering study ended when the consultant became bankrupt in 1988 and the contract was terminated. Although the study was not completed by the consultants there were some benefits from it. Twenty-two ZPEB staff went to the USA for a total 94 man-months of training in reservoir engineering. The software was acquired by ZPEB and the study was later completed using the computer facilities installed under the project. The teaching methods and curricula study for the training center was carried out in two stages. After the first stage of data collection and review which was completed in January 1986. ZPEB reduced the scope of the second stage and the study was completed in April 1989. Training in the center began in September 1990. When the center is fully operational three thousand skilled worker will be trained each year. The safety practices study began in August 1985 and ended in February 1986. The findings of the study are being implemented. The water treatment study was added to the project during implementation when it was found that the untreated water being injected was causing plugging of the formations and corrosion problems in the wells and pipelines. The study began in February 1987 and was completed successfully in March 1991. Results 2.6 During the implementation of the project oil and gas production and utilization and the known oil and gas reserves were increased. The proven oil reserve in South Wenliu is now 48 million tons, and in East Wenliu 122 million tons. Production from Zhongyuan has risen from 286,000 tons of oil and 15.22 MMCM gas in 1983 to 580,000 tons of oil and 107.58 MMCM gas by 1990. 2.7 Prior to the project ZPEB had been having difficulties in drilling deep wells, particularly in East Wenliu, where from 1975 to 1981 five wells had been attempted without success. Following the drilling study and the associated training, and using new equipment and materials supplied under the project, between 1986 and 1988 one hundred twenty wells were drilled by ZPEB without a failure. The drilling time per well has been reduced from 242 days  - 13 - in 1984 to 105 days in 1988. 2.8 The LPG plant was designed and ZPEB staff were trained by the consultant by taking part in the design work. The plant was constructed with a delay of five years, due mainly to delays in the procurement. This delay together the fall in the price of oil and gas reduced the benefit from an estimated $482 million at appraisal to $172 million. Role of the Bank 2.9 World Bank staff were well qualified to give advice and make recommendations, and were helpful in giving expert advice. They were most helpful in providing guidance on the procurement of equipment. Their advice to procure high quality modern equipment was sound, as was their suggestion that the associated gas should be processed instead of wasted by flaring. The addition of the water treatment study to the project during implementation also proved to be very useful. Role of GOC and ZPEB 2.10 The government initiative to have the Bank provide a loan for the project and government assistance in organizing and providing additional personnel when needed, throughout the implementation of the project proved important to the project's success. ZPEB set up a complete organization comprising a Foreign Affairs Department, including a Special Planning Division and a Foreign Finance Department, in ZEPB's finance department to deal with foreign currency accounting. A natural gas company and No. 2 drilling company were established especially for the project. Much of the project's success was due to the hard work and competence of ZPEB staff who worked on the project. Proiect Relationships 2.11 During the promotion and implementation of the project, a good relationship between the ZPEB, government agencies and the Bank staff was established and maintained. This relationship and the discussions during the project supervision were very fruitful, and led to several useful changes in project scope which helped achieve the project objectives. Some delays might have been avoided if a continuity in the staff involved had been maintained. Findings and Lessons Learned 2.12 The use of a World Bank loan for such a large technical project proved to be successful. The Bank's procurement procedures benefitted the Borrower, promoted competition and ensured the efficient transfer of technol- ogy. The long delay in implementation which extended the duration of the project from 2.5 to 7.5 years were due mainly to lack of experience of both ZPEB and the Bank in implementing this type of project in China. The long delay in the implementation of the project meant that there were many changes in the key staff involved in the project. The President of ZPEB, for example, changed four times during the project. These changes of personnel inevitably caused delays in implementation.   14 PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CHA) PART III: STATISTICAL INFORMATION 3.1 Related Bank Loans Loan Title Purpose Approval Status Comments Daqing Oilfield-Gaotaizi Oilfield Development, 1983 Satisfactory Completion Date Reservoir Development Enhance oil recovery, June 30, 1990 Project (Ln. 2231-CHA) TA and Training Liaodong Bay Petroleum Gas Development and TA 1986 Satisfactory Completion Date Appraisal and Technical Original: Dec., 31, 1989 Assistance Project Latest: Jan. 16, 1990 (Ln. 2708-CHA) Karamay Petroleum Petroleum Exploration, 1984 Satisfactory Completion Date Project (Ln 2426-CIA) Heavy Oil Recovery, TA March 31, 1991 and Training Weiyuan Gas Field Gas Field Rehabili- 1985 Satisfactory Completion Date Technical Assistance tation, TA and Originals June 30, 1991 Project (Ln. 2580-CHA) Training Latest: June 30, 1992 3.2 Project Timetable Item Actual date Identification Mission September 1981 Preappraisal Mission February 1983 Appraisal Mission September 1982 Loan Negotiation February 1983 Board Approval March 29, 1983 Loan Signature April 15, 1983 Loan Effectiveness August 9, 1983 Loan Closing December 31, 1990 Loan Completion May 3, 1991  15 3.3 Cumulative Estimated and Actual Disbursement. FY 1984 1985 1986 1987 1988 1989 1990 1991 Appraisal 27.0 85.0 100.8 100.8 100.8 100.8 100.8 100.8 Actual 0.8 18.4 35.7 58.3 63.6 81.6 85.7 96.8 Actual as Z of estimate 3 22 35 58 63 80 85 96 Date of Final Disbursement May 3, 1991 3.4 Proiect Implementation Component comiletion dates Appraisal Actual Project Components estimate South Wenliu Develoyment 3-D seismic survey, data processing and interpretation September 1983 December 1985 Drilling study December 1984 December 1987 Oil and gas gathering and separation facilities March 1985 December 1987 Water flooding March 1985 Continuing Utilities and infrastructure December 1984 December 1987 Production operations January 1985 December 1987 Import of equipment June 1985 December 1990 East Wenliu Exxloration Drilling December 1985 December 1985 LPG Plant Study for LPG Plant June 1985 September 1985 LPG Plant Installation September 1985 Docember 1989 Coamaissioning and training December 1985 October 1990 Laboratori Building and support facilities September 1984 October 1990 Import of equipment September 1984 August 1989 Installation and commissioning April 1985 September 1988 Trainina Center Building September 1984 December 1989 Curricula formulation September 1984 August 1990 Import of equipment September 1984 July 1989 Staff Training September 1986 April 1991  16 Computer Center Building and support facilities September 1984 Continuing Import of equipment October 1984 December 1987 Installation and commissioning March 1985 July 1987 Studio Drilling practices September 1983 November 1987 Reservoir study December 1983 (November 1988) Safety Practices November 1983 February 1986 Training Curricula February 1986 Water Treatment December 1990 MIS December 1983 Canceled  3.5 Proiect Costs and Financing A. Prolect Costs Appraisal est mte Actual Local F.E. Total Local F.E. Total Local F.E. Total Local F.1. Total ----- (Y million) ----- ----- million) ----- ----- (Y million) ------ ----- ($ million) ----- Drilling--South Wenliu 361.00 83.79 444.79 190 44.1 234.1 441.42 63.12 504.54 180.93 23.72 204.65 Drilling--East Wenliu 38.19 5.32 43.51 20.1 2.8 22.9 26.33 12.41 38.74 8.87 4.18 13.05 Surface facilities 45.98 - 45.98 24.2 - 24.2 146.44 - 146.44 56.11 - 56.11 LPG Plant 42.56 38.40 80.96 2.4 16.0 18.4 43.58 113.81 157.39 13.01 21.7 34.71 Other imported equipment 20.14 100.70 120.84 10.6 53.0 63.6 - 374.5 374.5 - 102.09 102.09 Buildings 6.65 - 6.65 3.5 - 3.5 34.24 - 34.24 9.18 - 9.18 Studies L technical assistance 0.95 14.06 15.01 0.5 7.4 7.9 - 23.28 23.28 - 6.5 6.5 Subtotal 515.47 242.27 757.74 251.3 123.3 374.6 692.01 587.12 1.279.13 268.1 158.19 426.29 _ Contingency 134.90 63.46 198.36 71.0 33.45 104.45 - - - - - - Total proiect cost 658.37 297.73 956.10 342.3 156.75 499.05 692.01 557.15 1.249.16 268.1 158.19 426.29 Front-end fee - 1.35 1.35 - 0.75 0.75 - 2.1 2.1 - 0.75 0.75 Total 650.37 299.08 949.45 342.3 157.5 499.8 692.01 559.25 1.251.26 268.1 158.94 427.04 B. Prolect Costs and Financing Planned Actual Local F.E. Total Local F.E. Total Local F.E. Total Local F.R. Total ----- (Y million) ----- ----- million) ----- ----- (Y million) ------ ----- million) ----- IBiD Loan - 191.44 191.44 - 100.8 100.8 - 358.4 358.4 - 96.8 96.8 Suppliers/GOC ZPEB - 107.64 107.64 - 56.7 56.7 - 200.8 200.8 - 62.2 62.2 GOC ZPEB 650.37 - 650.37 342.3 - 342.3 692.0 - 692.0 268.1 - .268.1 Total 650.37 299.08 949.45 342.3 157.5 499.8 692.0 559.2 1,251.2 268.1 159.0 427.1 Note: Figures may not add up due to rounding.  _ 18 _ 3.6 Proiect Results A. Economic ImDact Economic Rate of Return: Appraisal Actual (see Annex I for calculation) 742 491 B. Financial Impact Financial Rate of Return: Appraisal Actual (see Annex 2 for calculation) 14Z 0.5-9Z C. Studies Studies Status Impact of Study 1. Drilling and Completed Improved the drilling performance Completion Study in Zhongyuan 2. Study for LPG Completed Provided advanced training and Plant Design designed the LPG plant 3. Water Treatment Completed Reviewed the status of the water Study utilization and designed new system 4. Training Center Compl-ted Developed training methods and Study curricula for center 5. Field Safety Completed Reviewed field safety management and Study wrote new instructions and regulations 6. Reservoir Completed Stopped due to bankruptcy of Engineering Study consultant, study completed by ZPEB staff (pars 1.23). 7. Management Canceled Information System  - 19- 3.7 Status of Covenants Project agreement Status of section Covenant compliance 2.01 ZPEB shall carry out Parts A through In full compliance J of the Project, described in Schedule with the exception 2 to the Loan Agreement. With due of (iii) of Part J diligence and efficiency and in conformity, terminated. with appropriate administrative, financial, engineering and petroleum industry practices. 2.02 In order to assist ZPEB in carrying out Part Complied D of the Project and the studies referred to in Sections 2.08 through 2.11 of this Agreement, ZPEB shall employ, or cause to be employed, consultants and experts whose selection, qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank in accordance with the principles and procedures described in the 'Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executive Agency' published by the Bank in August 1981. 2.03 Except as the Bank shall otherwise agree, Complied procurement of the goods required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. 2.04 (a) ZPEB undertakes to insure, or make Complied adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan relevant to it by the Borrower against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by ZPEB to replace or repair such goods. 2.05 (a) ZPEB shall furnish to the Bank, Complied promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for Parts A through J of the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request.  - 20 _ Proj ect agreement Status of section Covenant compliance (b) ZPEB shall (i) maintain records and Complied procedures adequate to record and monitor the progress for Parts A through J of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Loan relevant to it by the Borrower, and to disclose their use in the Project; (ii) shall enable the Bank's representatives' to visit the facilities and construction site included in Parts A through J of the Project and to examine the goods financed out of the proceeds of the Loan relevant to it by the Borrower and any relevant records and documents; and (iii) shall furnish to the Bank at regular intervals all such information as the Bank shall reasonably request concerning Parts A through J of the Project, the cost of, and where appropriate, the benefits to be derived from such Parts, the expenditure of the proceeds of the Loan relevent to it by the Borrower and the goods and services financed out of such proceeds. (c) Upon the award of any contract for goods Complied and services to be financed out of the proceeds of the Loan, the Bank may publish a description thereof, the name and nationality of the party to whom the contract was awarded and the contract price. (d) Promptly after completion of the Project, Complied but in any event not later than six months after the closing Date or such later date as may be agreed (e) ZPEB shall enable the Bank's Complied representatives upon reasonable request to examine its plants, installations, sites, works, buildings, property and equipment and any relevant records and documents.  - 21 - Proj ect agreement Status of section Covenant compliance 2.06 ZPEB ahall duly perform *11 its Complied obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, ZPEB shall not take or concur in any action which would have the effect of amending, abrogating, assigning or vaiving the Subsidiary Loan Agreement or any provision thereof. 2.07 (a) ZPEB shall, at the request of the Bank, Complied exchange views with the Bank with regard to the progress of Parts A through J of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) ZPEB shall promptly inform the Bank of any Complied condition which interferes or threatens to interfere with the progress of parts A through J of the project, the accomplishment of the purposes of the Loan, or the performance by ZPEB of its obligations under this Agreement and under the Subsidiary Loan Agreement. 2.08 ZPEB shall carry out by December 31, 1983, or Cancelled such later date agreed by the Bank, a study under terms of reference satisfactory to the Bank of ZPEB's management information system and shall review the findings of such study with the Bank. 2.09 ZPEB shall carry out by December 1983, or such Complied later date agreed by the Bank, a study under terms of reference satisfactory to the Bank of ZPEB's drilling and completion practices, shall review the results of such study with the Bank and shall develop and implement an action plan satisfactory to the Bank to apply improved drilling and completion practices in its operations.  2 22 - Projact agreement Status of section Covenant compliance 2.10 (a) ZPEB shall carry out by December 31, 1983 or Compliod such later date agreed by the Bank, a study under (delayed, see terms of reference satisfactory to the Bank of para. 1.23) reservoir engineering in the Wenliu oilfield, shall review the results of such study vith the Bank and develop and implemcnt an action plan satisfactory to tho Bank to apply improved recovery techniques in its operations. (b) Until ZPKB shall have reviewed the results of the study referred to in paragraph (a) above, ZPEB shall not complete any wells drilled in 1983 or thereafter as injectors or producers. 2.11 ZPEB shall carry out by August 31, 1983, or Complied such later date agreed by the Bank, a study under terms of reference satisfactory to the Bank of operational safety, review the results of such study with the Bank and develop and implement in agreement with the Bank on action plan to improve safety in its operations. 2.12 ZPEB shall establish the training center under Complied Part G of the Project by September 30, 1984, (delayod) and shall not later than such date develop a training curricula in consultation with the Bank for such canter. 2.13 ZPEB shall review with the Bank the results of Complied the 3-D seismic study under Part A of the Project and agreed with the Bank on an action plan to implemont such results prior to drilling any exploration wells in the Bast Wenliu area beyond three initial wells. 2.14 In order to assist in coordinating and monitoring Complied implementation of the Project, ZPEB shall establish by September 30, 1983 and maintain, in consultation with the Bank (a) a Project Unit within PCN1, and (b) a Project Unit within GMC, in each case headed by a Deputy Diroctor.  - 23 - Project agreement Status of section Covenant compliance 3.01 ZPEB shall carry on its operations and conduct its Complied affairs in accordance with sound administrative, financial, engineering and petroleum industry practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. 3.02 ZPEB shall at all times operate and maintain its plant, Complied machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and petroleum industry practices. 3.03 ZPEB shall take out and maintain with responsible Complied insurers, or make other provisions satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. 4.01 ZPEB shall maintain records adequate to reflect in Complied accordance with consistently maintained appropriate accounting practices its operations and financial conditions. 4.02 ZPEB shall: (i) have its accounts and financial Complied statements (balance sheets, statements of income and expenses and related statements), and the Project records, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year (A) certified copies of such financial statements and of financial summaries of the Project records for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of ZPEB and the audit thereof as the Bank shall from time to time reasonably request. 4.03 ZPEB shall, by October 1 of each year, commencing Complied October 1, 1983, consult with the Bank on ZPEB's (delayed) current and future finances, including its trend of production costs, budget variance analysis, future investment program and related financing arrangements.  - 2b - 3.8 Use of Bank Resources A. Staff Inputs Stage of project Actual staff-weeks Through Appraisal 116.5 Appraisal through Board approval/effectivness 16.9 Supervision 183.1 Total 317.5 Average supervision/year - 23 SW B. Missions Stage of Month/ No. of SW in Specialities Performance Problems project cycle Year Persons Field Represented Status Through appraisal 9/81 5 20 PE PS FA G E Identification Appraisal 2/82 6 24 PE G FA E 2C Appraisal through Board Approval 5/82 3 9 E FA PE Postappraisal 9/83 3 9 E FA PE Supervision Mission 1 9/83 2 5 FA PE 1 - Mission 2 3/84 4 24 G GP FA PE 2 0 Mission 3 9/84 3 6 G FA PE 2 0 Mission 4 5/85 4 8 G FA PE PS 2 0 Mission 5 12/85 3 6 G FA PE 2 0 Mission 6 9/86 3 10 G GP PE 2 0 Mission 7 2/87 3 3 G PS PE 2 0 Mission 8 10/87 3 6 PS FA PE 2 0 Mission 9 3/89 3 3 PS PE G 2 0 Mission 10 5/91 4 3 PS PE FA C Note: In addition to the missions listed there were short field visits, dis- cussions with consultants, etc., which are also included in the total staff-weeks used on the project. /a Key to Specialities: PE - Petroleum Engineer, G - Geologist, GP - Geophysicist, C - Consultant, PS - Procurement Specialist, FA - Financial Analyst, E - Economist. Lb Key to Prolect Status: (1) No significant problems, (2) Moderate prob- lems, (3) Major problems being addressed, (4) Major problems not ade- quatetly addressed. Ic Key to Problem Types: P - political, F - Financial, M - Managerial, T - Technical, 0 - Other (usually procurement).   PROJECT COIPLETION REPORT CHINA zHONGYUAN-WELIU PETOLElE PROJECT (Loan 2252-CIA) Economic Analysis Oil Sales Oil Vatue Gas Sates Gas Vatue LPG Saies LPG Vatue Totat Benefits Totat Costs/a Net Benefits App. Act. App. Act. App. Act. App. Act. App. Act. App. Act. App. Act. App. Act. App. Act. Year (in 000 tons) (in S/ton) (in 000 M3) (in S/000 M3) (in 000 tons) (in S/ton) (in 000 S) (in 000 S) (in 000 S) 1983 286 204.0 205 15220 145.4 140.7 60772 153300 166260 -153300 -105488 1984 651 556 208.0 201 120080 59220 149.8 138.0 153400 119926 181760 58810 -28360 61116 1985 1063 720 211.8 195 196060 86170 154.3 133.8 255380 151934 42390 36690 212990 115244 1986 1063 761 217.5 99 196060 84460 158.9 68.0 64.32 253.2 329120 81078 93650 45360 235470 35718 1987 1015 798 223.8 126 188610 131000 163.7 86.5 64.32 260.8 326810 250 96830 50330 229980 -50080 1988 900 770 230.1 99 181440 158210 168.6 68.0 64.32 268.7 308530 87181 99670 37600 208860 49581 1989 860 641 236.4 120 174930 131430 173.7 82.4 64.32 276.7 306670 350 102310 66360 204360 -66010 1990 815 580 243.3 169 166520 107580 178.9 116.0 64.32 10.44 285.0 185.6 303270 113277 105620 38000 197650 75277 1991 778 539 248.4 166 159350 100049 180.7 113.9 64.32 50.79 287.9 182.3 297940 114933 107530 42040 190410 72893 1992 737 502 253.4 123 151390 93046 182.5 84.4 64.32 62.07 290.8 135.1 291070 82786 109490 41450 181580 41336 1993 701 467 258.4 117 143970 86533 184.3 80.3 64.32 62.07 293.7 128.5 285150 74364 111490 40890 173660 33474 1994 663 434 263.5 121 136630 80475 186.1 83.1 64.32 62.07 296.6 132.9 278350 72246 113530 40370 164820 31876 1995 627 403 268.5 126 129260 74842 188.0 86.5 64.32 62.07 299.6 138.4 271670 70640 115640 39880 156030 30760 1996 596 375 273.9 133 123030 69603 189.9 91.3 64.32 68.97 302.6 146.1 266380 72313 117790 39420 148590 32893 1997 566 349 279.3 139 110710 64731 191.8 95.4 64.32 68.97 305.6 152.7 259910 71226 119990 39000 139920 32226 1998 537 325 284.9 146 103740 60200 193.7 100.2 64.32 68.97 308.7 160.3 254460 70552 122250 38620 132210 31932 1999 501 302 290.5 154 97000 55986 195.6 105.7 72.42 169.1 164540 70684 57030 38270 107510 32414 2000 468 281 296.3 161 90400 52067 197.6 110.5 72.42 176.8 156550 69810 58740 37960 97810 31850 2001 435 261 302.3 161 86150 48422 199.6 110.5 72.42 176.8 148680 66187 60500 37680 88180 28507 2002 415 243 308.3 161 81160 45033 201.6 110.5 72.42 176.8 144280 62915 62320 37440 81960 25475 2003 390 226 314.4 161 76910 41880 203.6 110.5 72.42 176.8 138260 59829 64190 37240 74070 22589 ERR (act.) = 48.57X MPV (act.) = 155690 ERR (app.) = 74.06X NPV (app.) = 942390 /a Include actual and projected capital expenditures and O&M expenses. I.  PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CHA) Key FinanciaL Indicators (in MiLlion Yuan) 83 app 83 act 84 app 84 act 85 app 85 act 86 app 86 act 87 act 88 act 89 act 90 act Revenue 349.6 392.0 585.4 501.8 692.0 709.4 820.4 845.9 e93.5 1337.5 1692.9 2030.5 Operating Income 83.3 49.6 248.0 65.8 309.2 85.5 383.1 75.3 51.4 185.7 194.5 181.6 Net Income 92.0 3.3 247.2 53.4 305.0 70.7 381.1 59.8 32.4 145.9 160.7 123.2 Price -o Crude (Y/ton) 130 130 175 130 175 130 175 130 130 177 220 286 Gas (Y/000 CuM) 50 34 100 55 100 63 100 63 52 74 88 133 Total Assets 1566 2929 1855 4182 2147 5623 2340 7064 9316 11715 14190 18358 Long-term Debt 189 317 320 319 360 699 351 1280 2056 2825 3624 5042 Equity 1272 2297 1415 3433 1642 4307 1856 4956 6099 7531 8965 11116 Debt Service 2 2 15 2 21 6 22 21 104 318 444 422 Capital Expenditure 485 834 489 868 493 1071 490 1167 1205 1812 1905 2010 Operating Ratio 0.72 0.94 0.51 0.87 0.49 0.88 0.46 0.91 0.95 0.86 0.88 0.91 Debt Service Coverage (times) 45 1 18 9 15 7 18 7 3 6 6 4 Current Ratio (times) 2.6 1.4 2.4 1.3 2.2 1.3 2.4 1.0 1.1 1.2 1.1 1.1 X Unit Cost of Production O to Crude (Y/ton) 78 94 76 102 72 98 70 102 105 129 171 244 Gas (Y/000 Cu M) 138 169 181 246  PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CHA) Financial Analysis (in constant thousand Yuan) Year Oil Sales Gas Sales LPG Sales Total SaLes Total 0 & M Total Sales a Net 000 tons Price OOOCuM Price 000 tons Price Revenue Cap. Exp. Costs Costs Inc. Tax Cash Flow 1983 286 134.0 15220 33.7 38836.2 364089.3 13560.3 377649.6 4591.6 -343405.0 1984 556 134.1 59220 53.4 77715.0 167021.3 28076.9 195098.2 6643.9 -124027.1 1985 720 126.7 86170 57.8 96195.5 89706.5 29366.7 119073.1 12721.6 -35599.2 1986 761 118.0 84460 53.9 94363.4 38031.4 32404.9 70436.3 14429.2 9498.0 1987 798 278.2 131000 67.3 230830.7 52995.4 36861.9 89857.3 14349.6 126623.7 1988 770 252.4 158210 59.5 203744.7 60724.4 46434.4 107158.7 14002.2 82583.7 1989 641 213.7 131430 52.8 143893.2 35138.8 40348.7 75487.5 12035.4 56370.2 1990 580 211.4 107580 73.0 10.44 713.8 137908.7 38312.2 51569.4 89881.6 11129.1 36898.0 1991 539 211.4 100049 123.5 50.79 713.8 162545.9 7137.6 54029.1 61166.7 12279.3 89099.8 1992 502 211.4 93046 123.5 62.07 713.8 161910.8 7137.6 50308.8 57446.4 11433.8 93030.6 1993 467 211.4 86533 123.5 62.07 713.8 153707.9 7137.6 46799.9 53937.4 10636.6 89133.8 1994 434 211.4 80475 123.5 62.07 713.8 145983.9 7137.6 43502.3 50639.9 9887.2 85456.8 1995 403 211.4 78482 123.5 62.07 713.8 139184.9 7137.6 40399.1 47536.7 9181.6 82466.5 1996 375 211.4 69603 123.5 68.97 713.8 137094.2 24706.9 40277.2 64984.2 10252.3 61857.8 1997 349 211.4 64731 123.5 68.97 713.8 130996.4 24706.9 37478.2 62185.2 9539.6 59271.7 1998 325 211.4 60200 123.5 68.97 713.8 125363.5 24706.9 34896.1 59603.0 8882.4 56878.1 1999 302 211.4 55986 123.5 72.42 713.8 122443.7 24706.9 32432.0 57138.9 8255.4 57049.3 2000 281 211.4 52067 123.5 72.42 713.8 117520.5 24706.9 30176.5 54883.4 7681.1 54956.0 CD 2001 261 211.4 48422 123.5 72.42 713.8 112842.6 24706.9 30176.5 54883.4 7681.1 50278.0 X 2002 243 211.4 45033 123.5 72.42 713.8 108619.1 24706.9 30176.5 54883.4 7681.1 46054.5 2003 226 211.4 41880 123.5 72.42 713.8 104636.1 24706.9 30176.5 54883.4 7681.1 42071.5 o FRR = 9.32%  PROJECT COMPLETION REPORT CHINA ZHONGYUAN-WENLIU PETROLEUM PROJECT (Loan 2252-CIA) Financial Analysis (in constant thousand Yuan) Year Oil Sales Gas Sates LPG Sales Total Sates TotaL 0 & M Total Sales & Net 000 tons Price 000CuM Price 000 tons Price Revenue Cap. Exp. Costs Costs Inc. Tax Cash Flow 1983 286 129.0 15220 33.7 37416.9 364089.3 13560.3 377649.6 4591.6 -344824.3 1984 556 126.3 59220 48.6 73105.6 167021.3 28076.9 195098.2 6643.9 -128636.5 1985 720 119.3 86170 45.9 89879.5 89706.5 29366.7 119073.1 12721.6 -41915.2 1986 761 111.2 84460 42.8 88217.9 38031.4 32404.9 70436.3 14429.2 3352.4 1987 798 104.2 131000 41.7 88634.6 52995.4 36861.9 89857.3 14349.6 -15572.3 1 1988 770 125.5 158210 52.5 104915.4 60724.4 46434.4 107158.7 14002.2 -16245.5 co 1989 641 132.0 131430 52.8 91574.5 35138.8 40348.7 75487.5 12035.4 4051.5 1 1990 580 157.0 107580 73.0 10.44 713.8 106382.7 38312.2 51569.4 89881.6 11129.1 5371.9 1991 539 157.0 100049 73.0 50.79 713.8 128194.7 7137.6 54029.1 61166.7 12279.3 54748.7 1992 502 157.0 93046 73.0 62.07 713.8 129924.5 7137.6 50308.8 57446.4 11433.8 61044.3 1993 467 157.0 86533 73.0 62.07 713.8 123953.0 7137.6 46799.9 53937.4 10636.6 59378.9 1994 434 157.0 80475 73.0 62.07 713.8 118328.8 7137.6 43502.3 50639.9 9887.2 57801.7 1995 403 157.0 78482 73.0 62.07 713.8 113315.4 7137.6 40399.1 47536.7 9181.6 56597.1 1996 375 157.0 69603 73.0 68.97 713.8 113195.2 24706.9 40277.2 64984.2 10252.3 37958.7 1997 349 157.0 64731 73.0 68.97 713.8 108756.8 24706.9 37478.2 62185.2 9539.6 37032.0 1998 325 157.0 60200 73.0 68.97 713.8 104657.3 24706.9 34896.1 59603.0 8882.4 36171.8 1999 302 157.0 55986 73.0 72.42 713.8 103200.4 24706.9 32432.0 57138.9 8255.4 37806.1 2000 281 157.0 52067 73.0 72.42 713.8 99616.7 24706.9 30176.5 54883.4 7681.1 37052.1 lb OQ z 2001 261 157.0 48422 73.0 72.42 713.8 96210.0 24706.9 30176.5 54883.4 7681.1 33645.4 m X 2002 243 157.0 45033 73.0 72.42 713.8 93136.0 24706.9 30176.5 54883.4 7681.1 30571.5 2003 226 157.0 41880 73.0 72.42 713.8 90236.3 24706.9 30176.5 54883.4 7681.1 27671.8 o FRR = 0.48%