CPC, CNOOC in Talks to Expand Taiwan Strait E&P JV

TAIPEI (Dow Jones Newswires), November 6, 2008

Taiwan's state-owned refiner CPC Corp. is in talks with China National Offshore Oil Corp. to expand the area of their Taiwan Strait exploration and production joint venture and may finalize it by the end of the year, CPC President Chu Shao-hua said Thursday.

The companies are in discussions to expand the exploration area by 8,000 square kilometers on each side, said Chu, who was sworn in as the company's new president Thursday.

The current total area of the 50:50 joint venture in the Taiwan Strait, called the Tainan Basin project, is 15,400 square kilometers, said an executive from CPC's exploration and production division who declined to be named.

"We are waiting for them to complete their procedures" before signing, Chu told reporters, adding the investment amount hasn't been finalized yet.

He said the two sides have already extended the joint venture, which had been set to expire at the end of 2008, by two years.

CPC is also waiting for China National Offshore Oil, the state-owned parent of Hong Kong-listed Cnooc Ltd., to revive an agreement on establishing an exploration and production joint venture for the Taiwan Strait in the Nanjih Islands Basin, also by the year-end, said Chu.

The two companies agreed to form the Nanjih Islands Basin joint venture, also known as the Nanri Dao Basin, in August 2002, but the project was mothballed because the Taiwanese government, led by the independence-leaning Democratic Progressive Party, didn't approve it at the time.

Tensions between Taiwan and China have eased since the election in March of Taiwanese President Ma Ying-jeou of the Kuomintang, who pledged to improve ties with China.

Taiwan and China split amid a civil war in 1949, but China continues to claim the self-ruled island as part of its territory.

"If the relationship between Taiwan and mainland China continues to head in a good direction, we should be very willing to engage in such talks with CPC," said a person with China National Offshore Oil.

China National Offshore Oil is mulling over two options - to extend the current license with CPC on the Tainan Basin, which has had no commercial discovery, or look for a new block jointly with CPC, said the person.

The Nanjih Dao Basin project, with an area of nearly 12,000 square kilometers, has already been approved by Taiwan's government, said Chu.

Chu added the company may sign a deal with China National Offshore Oil to establish an East China Sea exploration and production joint venture by the end of the year.

The two sides have yet to determine the size of the planned block in the East China Sea, said the CPC exploration division executive.

On CPC's finances, Chu, who has been acting president since Sept. 8 after the previous president, B.L. Chen, retired, said the company estimates it will lose between NT$90 billion to NT$95 billion this year.

For the January-October period, CPC already has a pretax loss of NT$83.2 billion because domestic oil product prices were frozen by the government in the January-May period, CPC could only pass on part of the cost from higher crude oil prices since June, and also because of weak demand in the export market, said Chu.

"So we must improve our refinery yield," Chu said.

CPC chairman Wenent Pan said the company needs over NT$400 billion over the next few years to fund several planned projects, including a refinery upgrade and building a new petrochemical park.

"It is a big challenge to find funds for this," said Pan.

CPC plans to shut down its No. 3 naphtha cracker, which is 30 years old, and build a larger version next to the current site at the Linyuan Petrochemical Park in Kaohsiung. The plan still hasn't received final environmental approval.

Copyright (c) 2008 Dow Jones & Company, Inc.


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