Chevron to Start Drilling Offshore South China by Year-End

BANGKOK (Dow Jones Newswires), Oct. 18, 2011

Chevron plans to start drilling its first gas exploration well off the southern coast of China before the end of the year, near an area where large gas reserves have been found, a senior regional executive said.

San Ramon, Calif.-based Chevron is following the path of Husky Energy and BG Group, who both have found gas offshore southern China recently, demonstrating that the area contains potentially world-class reserves of hydrocarbons that could supply the rapidly expanding Chinese market.

Chevron is placing a string of multibillion dollar bets on natural gas in the Asian-Pacific region, where energy demand growth is expected to remain much stronger than in the U.S. and the euro zone.

The well site, in Block 42/05, is about 300 kilometers south of Hong Kong. Chevron also plans to drill wells in two other blocks further west, 64-18 and 53-30, around 125 kilometers south of China's Hainan island, Chevron Asia South Managing Director Joseph Geagea told Dow Jones Newswires recently.

Investment decisions for the three blocks, acquired from Devon Energy last year, depend on the results of the drilling, Geagea said, without providing a timeframe. Geagea oversees Chevron's upstream business in China, Vietnam, Cambodia, Bangladesh, Myanmar and Thailand.

Chevron has a 59.18% stake in 42/05, which covers 6,939 square kilometers, and BP has the remainder. It has 100% of the other two blocks, which cover around 14,000 square kilometers. Water depth at the Chevron blocks ranges from 500 meters to 2,600 meters.

The blocks are far from the Spratly Islands and other areas of the South China Sea where countries including Vietnam and the Philippines are disputing China's claims of sovereignty.

Like other foreign companies operating offshore China, Chevron has to have production-sharing contracts with state-owned China National Offshore Oil Corp. These give Cnooc the right to take a stake of up to 51% if there is a find that gets development approval.

Husky said last month that it expects the first gas deliveries to southern China from its offshore Liwan project south of Hong Kong in 2013 or 2014, with flows due to reach 500 million cubic feet a day in 2015.

Husky is one of the pioneers in the area: Its first discovery was in 2006, when it found a major gas reserve of 4 trillion-6 trillion cubic feet, China's largest known offshore gas deposit.

Last December, BG said it struck gas in its first South China well, 130 kilometers south of Hainan.

Chevron also has a 30-year onshore production-sharing contract with China National Petroleum Corp. for the development of the nearly 2,000 square kilometers of natural gas area in Chuandongbei in central China.

Elsewhere, Chevron is developing the $3.1 billion offshore Thailand Platong II gas project, in the Gulf of Thailand.

Geagea said also that Chevron is awaiting a production permit from the Cambodian government before starting development of a 4,709-square-kilometer block in the Gulf of Thailand, where it successfully drilled three wells in 2010.

It also hopes to make an investment decision by the end of 2011 on its part of a big Vietnam gas exploitation and power station project, estimated to cost an overall $7 billion.

"We still have quite a bit of work with PetroVietnam to make sure all commercial agreements, all regulatories and necessary contracts are in place before we reach a final investment decision," he said.

Chevron has a pact with state-run PetroVietnam to produce gas from Vietnam's Block B, from which a 400-kilometer gas pipeline will extend to the coast. That part of the Vietnam project is forecast to cost approximately $5 billion.

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