PetroChina and Shell Proceed with Changbei Project

PetroChina Company Limited and Shell China Exploration and Production Company Limited are jointly proceeding with the development of the Changbei natural gas field in Shaanxi Province and Inner Mongolia Autonomous Region, the People's Republic of China.

Shell, which will be the operator of the project under a Production Sharing Contract with PetroChina, today signed drilling contracts and Letters of Intent (LOI) for the award of Engineering, Procurement and Construction (EPC) contracts for the field development.

This marks the start of development of the field, which is expected to start delivering 1.5 billion cubic meters per annum (cm/pa) of natural gas to markets in Beijing, Shandong, Hebei and Tianjin by 2007, rising to 3 billion cm/pa by 2008.

Total development costs for the full lifecycle of the project will be about US$ 600 million, covering the construction of the central processing facilities, inter-field pipelines and development drilling of about 50 horizontal and multilateral wells over 10 years.

The contract for the drilling rigs and associated services covering the drilling of about 30 wells over the next six years was awarded to the No. 1 Drilling Company of Liaohe Petroleum Exploration Bureau. A four-year directional drilling contract was awarded to Halliburton Energy Services (Tianjin) Ltd, while a three-year contract for drilling fluids and associated services was awarded to the Engineering Technology Institute of Changqing Petroleum Exploration Bureau.

A consortium comprising China Petroleum Engineering Company Ltd, Southwest Company and Sichuan Petroleum Engineering Construction Company Ltd signed an LOI for the EPC contract for the central gas processing facility. China Liaohe Petroleum Engineering Co. Ltd. signed an LOI for the EPC contract for the inter-field pipeline infrastructure.

A second Shaan-Jing pipeline for transporting the gas to Beijing is already being built by PetroChina and is scheduled to go into operation by the middle of this year.

Attending the signing ceremony in Beijing were Yan Cunzhang, President of PetroChina International, and Dominique Gardy, Shell's Executive Vice President Exploration and Production, Asia Pacific.

Shell has entitlement to about 50% of gas volumes over the 20-year project lifetime.

Yan Cunzhang said: "The Changbei project is the largest onshore Chinese-foreign exploration and production project. It will harness the best of our two companies in the project, combining Chinese design, materials and services with sophisticated technologies from Shell. I am looking forward to the success of Changbei and further opportunities to work with Shell both at home and overseas."

Yves Merer, President of Shell China Exploration and Production Company Limited, said: "We are very pleased to take a final investment decision on this project bringing our experience in subsurface reservoir management and advanced drilling technology to this partnership with PetroChina. Changbei is a perfect fit with Shell's strategy to grow its portfolio of integrated gas and to supply clean energy to meet China's energy demand from both indigenous and external resources."