Chinese oil and gas companies have stepped up their offshore exploration and production (E&P) efforts abroad as China's largest onshore oil fields are mature and production has peaked and China seeks to secure additional energy supply.
In a June report, consulting firm Wood Mackenzie noted that China's national oil companies (NOCs) have been aggressively pursuing merger and acquisition activity over the past year of oil and gas interests, which will result in net overseas production reaching a new record level of 1 million BOE/d in 2010 from CNPC/PetroChina, Sinopec Group and CNOOC Ltd combined.
In total, the three Chinese NOCs have committed nearly US $25 billion to asset and corporate acquisitions since April 2009, far exceeding previous annual spending. Wood Mackenzie expects high levels of international business activity to continue as well as partnerships to be formed between NOCs and international offshore companies (IOCs).
In March, CNOOC Limited form a 50-50 joint venture valued at $3.1 billion with Bridas Energy Holdings Ltd that gives CNOOC entry into the Latin American market and further enable CNOOC's production and reserve growth in the future. Bridas, through its affiliates, holds oil and gas exploration and production activities in Argentina, Bolivia and Chile.
Sinopec will venture into deepwater exploration with its acquisition of 55 percent interest of Sonangol Sinopec International Limited from Sinopec Overseas Oil & Gas Ltd., a subsidiary of China Petrochemical Corporation, for US$1.678 billion. The acquisition gives Sinopec a 50 percent participation interest in Block 18 offshore Angola, which contains total proved and probable reserves of 238 million barrels, and kicks off Sinopec's deepwater drilling program.
Offshore China E&P activities to date have focused on the Bohai Bay region, Pearl River Delta, South China Sea, and, to a lesser extent, the East China Sea. The Bohai Bay Basin, located in northeastern China offshore from Beijing, is the oldest oil-producing offshore zone and holds the bulk of proven offshore reserves in China.
Offshore zones have also received increasing attention for upstream natural gas developments in China, particularly in the South China Sea. Discovering additional gas reserves will be critical to the Chinese government's plan to increase the use of gas in generating electric power.
According to RigLogix, four semisubmersibles and 30 jackups comprise China's offshore rig fleet, including 28 rigs currently drilling. Forty-five rigs are under construction at shipyards across China.
As in other regions of the world, Chinese E&P companies are turning to deepwater to find more oil and gas reserves. CNOOC will take delivery in 2011 of the sixth generation semisubmersible Hai Yang Shi You 981, the first DPS-3 deepwater semi built in China. CNOOC awarded the construction contract to Shanghai Waigaoquio Shipyard in 2007.
This rig will be capable of operating in South China Sea, West Africa and South East Asia, operating in up to 10,000 feet of water and drilling depth capacity of 40,000 feet. The rig is expected to work offshore China after its delivery to CNOOC.
In June 2006, CNOOC and Husky Energy announced the country’s first deepwater natural gas discovery at the Liwan 3-1-1 field in the South China Sea, which the companies preliminarily estimate holds up to 6 Tcf of natural gas reserves. CNOOC plans to work with Husky and Anadarko to develop the Liwan field and expects to start commercial operations by 2013 with a peak production of 150 MMcf/d.
Earlier this year, Husky subsidiary Husky Oil China made its third significant gas discovery on Block 29/26 in the South China Sea. The Liuhua 29-1 exploration well was drilled 26.7 miles (43 km) northeast of the Liwan 3-1 Gas Field and 12.4 miles (20 km) northeast of the LH 34-2 Gas Field in a water depth of 2,372 feet (723 meters). The well, drilled using Seadrill semisubmersible West Hercules, tested natural gas at an equipment restricted rate of 57 MMcf/d, with indications that the future deliverability of the well could exceed 90 MMcf/d.
Husky Oil China last week awarded Seadrill has been awarded a six-month contract extension valued at $90 million for the West Hercules, which will keep the rig working offshore China until May 2012.
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