Sinopec Plans 1st Deepwater Well in South China Sea

SHANGHAI (Dow Jones Newswires), Jun. 16, 2009

China Petroleum & Chemical Corp. is aiming to drill its first deepwater well next year in the South China Sea, ending a moratorium on exploration in waters close to acreage disputed by Vietnam, two company officials said Tuesday.

The company, known as Sinopec, has begun a 3D seismic survey in an area of 1,250 square kilometers in the Qiongdongnan basin and drilling at the best prospects will follow, said the officials, declining to be named.

Sinopec has a license to explore more than 8,000 sq km in the Qiongdongnan basin, including some blocks in territorial waters claimed by Vietnam. However, the planned 3D survey will be conducted in an undisputed area, the Sinopec officials said.

The survey was originally scheduled for last year, but was shelved on government orders due to a border dispute with Vietnam triggered by PetroChina Co.'s planned exploration activity in the Huaguang Trough of the South China Sea.

China was keen to avoid a confrontation with its neighbor as it was hosting the Olympic Games, the Sinopec officials said.

An earlier 2D seismic survey across the entire 8,000 sq km pointed to a potential resource of 800 billion cubic meters of natural gas, one of the officials said.

If confirmed by exploration and appraisal drilling, it would place the reserves among the biggest offshore China.

Typically, 30% of in-place reserves can be certified as recoverable reserves, which amounts to around 240 billion cubic meters for the acreage, he said.

In comparison, Canadian company Husky Energy Inc.'s discovery in the Liwan field, which is China's largest offshore gas find to date, holds an estimated 4 trillion-6 trillion cubic feet of natural gas, equivalent to 112 billion-168 billion cubic meters.

Sinopec spokesman Huang Wensheng said he wasn't aware of the company's plans to drill in the South China Sea.

China's is becoming more aggressive in its search for new sources of oil and natural gas, as its energy needs rise, even at the risk of worsening tensions with neighbors that claim territory as their own.

Drilling activity by state-owned China National Offshore Oil Corp. in the East China Sea has been a constant irritation to Japan. China has also claimed the Spratly Islands in the South China Sea are part of its territory, a claim disputed by Brunei, Malaysia, Taiwan and the Philippines.

Sinopec is China's second-largest oil producer by capacity, but only a minor player in the offshore industry.

It currently produces gas from the Pinghu and Chunxiao gas fields in the East China Sea along with domestic rival and leading offshore player, China National Offshore Oil Corp. It also has some shallow-water acreage in northern China's Bohai Bay.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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