PetroChina Seeks E&P Licenses for South China Sea

PetroChina is applying for exploration and production licenses for the South China Sea, a move that could challenge CNOOC's dominant position in China's offshore oil and gas sector.

However, if approved, the licenses wouldn't mean a change in the country's oil and gas licensing policy, an official with the Ministry of Land & Resources said Thursday.

There is no policy allowing only CNOOC to explore and produce oil and gas offshore China, the MLR official said, adding: "There never has been such a restriction."

The MLR is the government's issuing body for oil and gas exploration licenses.

"PetroChina is applying for licenses to explore a few blocks in the South China Sea," and already holds exploration licenses for blocks in the Bohai Sea in the North, the official said.

PetroChina is listed in New York and Hong Kong. In its recently filed Form 20-F to the U.S. Securities & Exchange Commission, there's a reference to blocks in the South China Sea for which the company is applying, an industry official familiar with PetroChina's Form 20-F said.

PetroChina officials couldn't be reached for comment.

PetroChina's oil and gas exploration and production activity is largely confined to onshore basins in the Northeast and Northwest, except for a few shallow sea blocks in the Bohai Bay. Currently, PetroChina and U.S.-based Apache are producing oil from Zhaodong, a shallow sea block in the Bohai Bay with a daily flow rate of 15,500 barrels.

The government recently adopted a policy of encouraging Chinese oil and gas companies to initiate hydrocarbon exploration in basins traditionally explored by rival companies.

Additionally, the government could ask a company to surrender a license if the company fails to make a commercial discovery in a block within the licensed period. The block could be allocated later to another company using different technology or a different approach, the MLR official said.

PetroChina is keen to explore offshore areas as its crude output in the Northeast is falling. The company has said crude output will fall by 2 million metric tons a year in the next seven years at its largest oil field, Daqing.

In addition to PetroChina's moves offshore, Sinopec is working with CNOOC, Royal Dutch/Shell Group and Unocal to explore for natural gas in the East China Sea.

China's offshore oil output last year reached 20.9 million tons, up 4.2% on year, and was 13% of China's total oil output. Nearly all of China's offshore oil production is produced by CNOOC and its foreign production-sharing contract partners.