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CNOOC, Husky to Explore Deep Water Oil

Posted on: Wednesday, 7 December 2005, 06:00 CST

HONG KONG - China's largest offshore oil producer, CNOOC Ltd., said its unlisted parent company plans to start deep water oil and gas exploration in the South China Sea with Canada's Husky Energy Inc. next year.

If the scheduled exploration finds sizable reserves in a bloc in the South China Sea about 300 kilometers, or 185 miles, south of Hong Kong, it will be China's first deep water oil and gas field.

CNOOC's parent company, China National Offshore Oil Corp., is currently restricted to pumping oil and gas offshore at no deeper than 350 meters, or 1,155 feet, because of the technology currently available to it.

CNOOC previously signed a production sharing contract with Husky, an integrated oil and gas producer, to jointly explore and develop two deep water blocs in the South China Sea.

The two companies explored the other bloc in the western part of the South China Sea in 2004, but the reserves discovered were too small to justify commercial drilling.

"Deep water exploration will be one of the major growth areas for CNOOC. A new exploration peak in the South China Sea is coming," Shi He Sheng, the chief geologist at CNOOC Ltd., told reporters Tuesday at a presentation on the company's plans in Shenzhen.

CNOOC jointly owns two other deep water blocs in the South China Sea with U.S.-based Kerr-McGee Corp. and Devon Energy Corp. but exploration hasn't started yet.

Under the terms of the production sharing contract, Husky, Kerr-McGee and Devon Energy will bear all the costs during the exploration period. CNOOC has the rights to a 51 percent stake if the bloc is commercially viable.

Duan Cheng Gang, the vice president of CNOOC's Shenzhen Branch, told reporters the company is in talks with many foreign companies on teaming up to explore and develop other deep water oil and gas fields in offshore China.

"They know there is a very rich oil and gas reserve there (in the South China Sea), that is why they are so keen on coming to us," said Duan.

"We can definitely self-finance the explorations, but we need the technology, so we have to work with those foreign companies," he said, but declined to elaborate.

China has been actively looking for new oil and gas reserves domestically and internationally as the country has been a net crude oil importer since 1993 amid rapid economic growth.

According to CNOOC's Web site, the company had net oil reserves of 357.7 million barrels of oil equivalent and a net natural gas reserve of 3,215.6 billion cubic feet in the South China Sea as at the end of 2004. The figures represent about 25 percent of CNOOC's total oil and 70 percent of its gas reserves.

CNOOC Ltd. also has oil and gas fields in Bohai Bay along China's northeastern coast, in the East China Sea, and in Indonesia.

Duan said the cost of drilling a deep water exploration well is about $20 million to $30 million, or two to three times higher than drilling one in shallow waters.

"We are optimistic that there will be reserves in the bloc that we are going to drill as there are proven reserves neighboring it. But we have to explore it before we can tell how much reserves it has," Duan said.

The bloc will be able to start producing oil and gas in four to five years after commercial drilling starts, he said.

Source: Associated Press/AP Online

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