Among Friends

Hammer's China deal

Prospects for the agreement first glimmered at a Houston barbecue four years ago. Deng Xiaoping, Communist Party Vice Chairman of the People's Republic of China, who was making a brief U.S. tour, was introduced to Armand Hammer, 85, chairman of Occidental Petroleum. Brushing aside the interpreter, Deng said, "No introduction is necessary. We know Dr. Hammer as the American who helped Lenin. Why don't you come .to China and help us as well?" Hammer, whose close trade ties with the Soviet Union stretch back for more than half a century, said that he would be happy to deal with the Chinese. He pointed out, however, that his age forced him to travel on his company jet, Oxy-1, a white Boeing 727, and private planes were effectively banned in China. Replied Deng: "It can be arranged. You send me a cable when you are ready to come."

Two months later, Hammer made his first trip. After several subsequent visits, his travels paid off. Occidental (1982 sales: $18.2 billion) has become the first U.S. company to win oil rights from the Chinese in a round of competitive bidding. By early next year, the Los Angeles-based company and a consortium of minority foreign partners expect to begin drilling on two 415-sq.-mi. tracts in the South China Sea. Said Hammer, who celebrated his success in the banquet hall of the Peking Hotel while a Chinese orchestra played Turkey in the Straw: "This is one of the largest unexplored basins in the world. We are very proud."

The bidding for tracts in the 58,000-sq.-mi. area in the Yellow and South China seas has consumed 18 months and attracted 33 companies, including 16 from the U.S. In May a group headed by British Petroleum won the first contract. The Occidental-led group is expected to spend $120 million on exploration. If it is successful in discovering commercial quantities of crude, the production contract will run for 15 years; China will get up to 51% of the proceeds.

Like the nation itself, China's offshore oil deposits are enormous but somewhat mysterious. They are estimated to range in volume between 30 billion and 100 billion bbl., which would make them perhaps the equal of the North Sea field. But for technical and political reasons China cannot maintain production from its existing wells, much less develop these huge crude reserves by itself. Last year China signed a separate joint-development contract with Atlantic Richfield, which has already begun test drilling in a 3,500-sq.-mi. block off the coast of Viet Nam.

In winning the contracts for Occidental, Hammer has succeeded in becoming accepted by Premier Zhao Ziyang as "China's old friend." Last year Hammer completed 2 1/2 years of negotiations for a study that may lead to joint development of the world's largest open-pit coal mine in Shanxi province, west of Peking.

For Hammer, striking deals with Communist nations is nearly instinctive by now. He made his first trip to the Soviet Union in 1921 to help out during a typhoid epidemic. By 1925 Hammer had won a Soviet concession to manufacture writing implements. According to one source, his plant produced 72 million pencils and 95 million pens in a single year.

The Chinese have expressed no public misgivings about dealing with a friend of the Soviets. Nor have they shown any outward unease over Hammer's capitalist ways. During his last trip, Hammer and 23 members of his party stayed in a Peking guesthouse that was once occupied by Mao's incarcerated widow Jiang Qing (reported rent: $5,000 a day). As for Hammer, he says that the rewards of doing business with the Chinese outweigh the difficulties, but "like any good salesman, you have to know the territory." This file is automatically generated by a robot program, so viewer discretion is required.