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CNOOC, Sinopec Co-operate in Gas Project
Chinese offshore oil group CNOOC Ltd said Friday that its parent company has agreed with China Petroleum and Chemical Corp (Sinopec) to jointly develop natural gas in the Xihu Trough of the East China Sea.
CNOOC Ltd said the agreement will allow its parent's 50 per cent interest in the field to be injected into the Hong Kong-listed company.
Under the agreement, CNOOC and Sinopec will probably jointly develop the field with international oil and gas companies.
The deal ends a stand-off over which firm would develop the basin, considered the pearl of gas projects in the East China Sea, about 400 kilometres east of Shanghai.
CNOOC will be the operator of the field, with Sinopec getting a 50 per cent working interest, CNOOC Ltd said.
Hong Kong-listed Sinopec will gain control of its interest in the basin through its 6.45 billion yuan (US$779 million) acquisition of Sinopec National Star Petroleum from its mainland parent, Sinopec Group Co.
CNOOC Ltd said it expects to receive the Xihu basin asset injection from parent CNOOC since there is an underlying agreement between the two parties that mandates such transfers.
"We expect to begin a discussion with the parent on the issue soon," CNOOC Ltd Chief Financial Officer Mark Qiu said in a statement. "Even though Sinopec's announced acquisition terms for the assets serve as a good benchmark, we hope to acquire the assets with a much more favourable term, and we are confident that we will be able to do so."
Sinopec's deal for National Star also includes taking on a net debt of about 2.68 billion yuan (US$322.8 million), making its enterprise value 9.13 billion yuan (US$1.1 billion). It is funding the acquisition through an offer worth more than 10 billion yuan (US$1.2 billion) in yuan-currency A-shares next month.
Industry sources have said that the Chunxiao field is the site of the biggest discovery in the Xihu Basin, where Sinopec found proven reserves of 54 billion cubic metres. Sinopec had aimed to develop the field to produce up to 3 billion cubic metres annually by 2005.
Pinghu, the only Xihu field in commercial production, has proven gas reserves of 11 billion cubic metres, and that figure is expected to double by the end of 2003. Sources have said CNOOC plans to drill seven wells in the Xihu Basin this year and hopes to begin commercial production at other fields by 2003.
The sources also have said Royal/Dutch Shell Group and Unocal were high on the list of potential international partners for the basin. Shell ploughed about US$600 million into global stock offerings of both Sinopec and CNOOC, partly to get the option to participate in exploration and production in the East China Sea.
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