Total to Decide on China Sulige Gas Investment in Mid-2009

South Sulige block
(Click to Enlarge)

BEIJING (Dow Jones Newswires), November 26, 2008

Total SA expects to make a final investment decision on a major natural gas block in northern China in mid-2009 after submitting a development plan to China National Petroleum Corp., a senior executive at Total said Wednesday.

Charles Mattenet, senior vice-president for exploration and production in Asia and the Far East, said $1.5 billion-$2 billion will initially be invested at the South Sulige block in Inner Mongolia region if the development plan is approved by CNPC and the Chinese government.

China's desire to boost natural gas output and master advanced drilling technology has led it to open up a handful of onshore blocks to foreign partners, including Chevron Corp., Royal Dutch Shell Plc and Total.

The Chinese government aims to have gas account for 5.3% of the country's energy mix by 2010, almost double the 2.8% share in 2005.

The South Sulige block, which covers an area of 2,390 square kilometers, contains tight gas which means the flow of gas through the rock is limited.

Mattenet said Total has so far spent around $130 million on the South Sulige block since signing a contract for the evaluation, development and production of natural gas with CNPC in March 2006.

Total plans to drill around 2,000 wells at South Sulige over the life of the field, projected at around 20-25 years, Mattenet said.

Drilling the wells would account for around 80% of the expenses of developing the field, he added. Some of the gas reservoirs at South Sulige are located at depths of around 3,500 meters.

Total has proven expertise in developing gas and oil reserves at great depth, in areas with difficult terrain and in developing reserves with high sulfur content, the company's China Web site said.

"Assuming we have a positive final investment decision in mid-2009, then our plan is to start gas production in mid-2011, and have plateau production of about 3 billion cubic meters a year around 2014," Mattenet told Dow Jones Newswires.

However, he added that if the performance of the first 100-200 wells drilled in the block exceed expectations then Total may revise its expectations for peak gas production up to 5 billion cubic meters a year.

The South Sulige block is part of the Sulige field, one of the most resource-rich areas in China and itself part of the giant Changqing oil and gas field.

Sulige has proven reserves of more than 534 billion cubic meters, according to a statement on CNPC's Web site.

Gas produced by Total will be sold to CNPC's PetroChina Co. unit and moved by pipeline to Beijing to be sold to a mix of customers, including households, industry and other commercial users, Mattenet said.

Asked whether the financial crisis had impacted Total's planning for developing the South Sulige field, Mattenet said China's system of state-set prices for natural gas was "more important."

China last raised natural gas prices on a nationwide basis for industrial users in November 2007, while freezing them for households which were grappling at the time with higher food costs and pressures on their budgets.

The contract for the South Sulige block represents Total's sole upstream asset in China, but Mattenet said the company was keen to expand its footprint further.

In June, oil and gas newspaper Upstream said Total was in talks with China Petroleum & Chemical Corp., known as Sinopec, over the possible development of sour gas deposits in Sichuan province in southwestern China. Areas planned for joint development may include the large Puguang gas field, the report said.

"It's true that we are still interested to (have) cooperation with one of the Chinese companies - either PetroChina or Sinopec - in the Sichuan area," Mattenet said, without confirming the Upstream report.

Total is a partner of Sinopec in oil and gas exploration and production in Yemen, and in Canada. It is also the operator of the OML 130 license in Nigeria, in which Cnooc Ltd. has a 45% stake.

Earlier Wednesday, Total said talks with China National Offshore Oil Corp. over a final sale-and-purchase agreement for up to one million tons of liquefied natural gas exports annually to China were at "an advanced stage."

In China, Total also has a 22.4% stake in the Wepec refinery at Dalian in northeastern China, which is the first Sino-foreign oil refining joint venture. Other partners in the project are PetroChina and Sinochem Corp.

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

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