Newfield, Ultra Plot Sale of China Oil Block Stakes

U.S. oil companies Newfield Exploration Co. (NFX) and Ultra Petroleum Corp. (UPL) are preparing to put their stakes in an oil block in northern China's Bohai Bay up for sale, people familiar with the matter said.

Ultra and Newfield, which are both based in Houston, Texas, have asked a U.S. investment bank to find a buyer for their interests in the 05/36 block where oil is being produced from two fields.

Newfield has a 12% stake in the block, while Ultra owns 7.82%.

A formal announcement will be made public in the coming weeks, industry sources said.

When approached by Dow Jones Newswires, Ultra chief executive Michael Watford declined to comment, as did Newfield officials.

Bohai Bay is one of China's chief oil producing hubs with oil majors Chevron Corp. (CVX) and ConocoPhillips (COP) among the companies drilling in the seabed, along with smaller producers like Australia's Roc Oil (ROC.AU).

It has been the focus of several asset sales recently, with Roc and Sinochem Corp., China's 4th biggest oil company both buying stakes in fields there in the past year.

The 05/36 block is in about 22 meters of water and located about 193 kilometers east of Beijing, close to the port city of Tanggu where much of the oil production from Bohai Bay is unloaded.

Preemptive Rights

David Trice, chairman and chief executive of Newfield, said in February that the Caofeidian 12-1 and CFD 12-1 South fields in block 05/36 were pumping in excess of 11,000 barrels per day after starting production last September.

The block is operated by Anadarko Petroleum Corp. (APC), which inherited it through its takeover of Kerr-McGee Corp. last year.

Anadarko has a 29.18% interest in the block, with Cnooc Ltd. (CEO), China's largest offshore oil producer by capacity, owning the remaining 51% stake.

It's not known whether either of these companies have preemptive rights to buy the stakes.

Newfield's willingness to sell out in Bohai is a surprise as the company has an apparently strong commitment to China's offshore oil sector.

It has a number of exploration opportunities in the South China Sea near where competitors have found large volumes of oil and natural gas.

Newfield has a production sharing contract with China National Offshore Oil Corp., the parent of Hong Kong-listed Cnooc Ltd., for block 17/08 in the Pearl River Mouth basin of the South China Sea and a geophysical survey agreement for neighboring block 16/05.

According to its Web site, the company acquired seismic data across portions of the two blocks last year. The blocks cover a total area of around 8,000 square kilometers.

Ultra's decision to seek a buyer for its stake is less of a surprise as it has previously said it may exit China altogether and use the proceeds to invest in developing its acreage in the U.S. In addition to block 05/36, Ultra has a stake in the adjacent 04/36 block.

A spokeswoman told Dow Jones Newswires in August last year that the company could freeze those plans if an exploration well to be drilled in Bohai's CFD 12-3-1 is successful in finding commercial volumes of natural gas.

However, Ultra said in a statement accompanying its annual results in February that the well had turned up dry and been abandoned.

Copyright (c) 2007 Dow Jones & Company, Inc.