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China dependent on foreign expertise

(China Daily)

13:25, May 21, 2012

Cooperating with overseas companies on domestic offshore blocks comes naturally to China National Offshore Oil Corp, the country's biggest marine oil producer, ever since it was established in 1981.

Even though last year's oil spill in northern China's Bohai Bay drew nationwide criticism over the country's lax oversight on foreign oil companies' activities in offshore China, industrial experts reiterated that the cooperation will continue, in particular as the country taps into more challenging deepwater areas.

This year CNOOC announced a string of foreign cooperation projects in China's offshore areas, with the latest coming from its product-sharing contract with Austrian company Roc Oil Co this month.

The two companies inked the deal to jointly explore Bohai Bay's 09/05 block located 50 kilometers southeast of Tianjin. The move came a month after CNOOC's announcement that it would join hands with Italy's biggest energy conglomerate, Eni SpA, to explore the 30/27 deepwater block in the South China Sea.

Eni will conduct the three-dimension seismic survey and drill an exploration well in the 5,130 square kilometer block, which was offered for foreign cooperation last year.

Also in the South China Sea, BP Plc obtained approval from the Ministry of Commerce in February to farm the 43/11 deepwater gas block, holding a 40.8 percent working interest in the project during the exploration phase. Anadarko Petroleum Corp and CNOOC will hold 50 percent and 9.18 percent respectively.

China has the technological capability to explore and develop oil and gas in shallow waters at a depth of less than 300 meters but when going into deep water it still has to cooperate with foreign companies, which have more advanced technology, to share risks, said Ru Ke, CNOOC's former chief geologist.

The South China Sea, which is estimated to make up one third of China's total oil and gas resources volume, is the major focus for CNOOC's deepwater exploration, even though the area's reserves have yet to be conclusively determined.

Some foreign companies including ConocoPhillips have shown their strong interest in tapping into the sector as the traditional offshore area of Bohai Bay reaches its peak period after tens of years of exploration and development.

In shallow waters, CNOOC has joint projects with some of the world's leading oil companies, including Chevron Corp, ConocoPhillips Co, which operates the Penglai 19-3 oilfield that leaked about 700 barrels of crude oil into the sea last June, Texaco Inc and Kerr-McGee Corp.

CNOOC has made several big discoveries in Bohai Bay's shallow waters, meaning it will remain the biggest contributor to CNOOC's output in the coming years.

By contrast, China's development pace in the South China Sea is slack, even compared with neighbors such as Vietnam and the Philippines, which have teamed up with foreign companies for oil and gas exploration in the area.

China should speed up its pace in the deepwater sector in the South China Sea and bring foreign companies to work together. On one hand this will help to increase the technological capability to reduce risks. On the other it will balance the interests of other countries, said Feng Fei, director of the industry department at the Development Research Center of the State Council.

According to CNOOC, the cost of drilling a deepwater well is between $30 million to $60 million. The success rate of discovering oil is less than 30 percent.

In the fledgling deepwater area, CNOOC will choose to work together with foreign companies to share costs and risks and will choose to explore areas with a high possibility of oil and gas independently - a normal practice globally - said Shi Hesheng, chief geologist of CNOOC's Shenzhen branch, which is in charge of the eastern South China Sea area, where China's first deepwater discovery was made in 2006 by Canadian oil company Husky Energy Inc.


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