Newfield, CNOOC to Ink Deal For South China Sea Oil Block

BEIJING, Nigeria (Dow Jones Newswires), Jul 27, 2007 (Dow Jones Commodities News)

Newfield Exploration Co. (NFX) plans to sign within weeks a production sharing contract with China National Offshore Oil Corp. for a new oil block in the South China Sea, an industry insider said Friday.

The contract for Block 22/27 comes as Houston-based Newfield reshapes its China portfolio by seeking a buyer for its stakes in two oil fields in northern China's Bohai Bay.

Terms of the deal give Cnooc's listed unit, Cnooc Ltd. (CEO), the right to take a 51% interest in any commercial discovery.

The person said Newfield is obligated to drill at least one wildcat well under a seven-year exploration period for Block 22/27, which lies in shallow water to the west of Hainan island.

Block 22/27, which may be subject to a name change ahead of the contract-signing ceremony, was offered by Cnooc for joint development with a foreign partner in 2006.

According to Cnooc's Web site, it covers an area of 5,424 square kilometers and the water depth ranges from 10 meters to 60 meters. Some 2-D seismic data exists for the block and three wells have been drilled there in the past.

Both Newfield and Cnooc declined to comment on the pending production sharing agreement.

Analysts believe there is vast potential for more oil and natural gas discoveries in the South China Sea, particularly in deep water.

In June last year, Canada's Husky Energy Inc. (HSE.T) said it had found recoverable reserves of natural gas estimated at between 113 billion and 170 billion cubic meters. Its Liwan 3-1 well was drilled about 240 kilometers south of Hong Kong.

Prior to that, the South China Sea had been largely shunned by major oil producers after a succession of wells drilled in the 1980's turned up dry.

Other companies with blocks in the South China Sea include Australia's Roc Oil Co. (ROC.AU), BG Group PLC (BRG) of the UK, and U.S. firms Devon Energy Corp. (DVN) and Anadarko Petroleum Corp. (APC).

However, by signing the contract after August 1, Newfield will be the first foreign company potentially affected by China's recent decision to slap a 5% tax on crude oil produced in its territorial waters and sold overseas.

Competitors who signed their production sharing contracts with Chinese joint venture partners before the start of August have a tax holiday until 2012.

Newfield is shifting its focus to the South China Sea as it markets its stakes in the Caofeidian 12-1 and CFD 12-1 South oil fields in the Bohai Bay. A deal for these assets is expected to close in the fourth quarter of this year, the company said earlier this week.

In December 2005, Newfield signed a production sharing contract for Block 17/08 in the Pearl River Mouth Basin, about 180 kilometers offshore Hong Kong, and a geophysical survey agreement for adjacent Block 16/05.

Block 17/08, which is classified as a shallow water block based on its depth of 150 meters to 350 meters, covers an area of 7,108 square kilometers.

Newfield has been active in China since 1997 and will soon open an office in Shekou, in southern China's Guangdong province, as it prepares for a drilling campaign in Block 17/08 next year.

Its biggest presence is in the U.S., particularly the Gulf of Mexico, and in June the company bought most of the Rocky Mountain assets of Stone Energy Corp. (SGY) for about $577.9 million.

In addition to its blocks in China, Newfield's international assets include offshore Malaysia.

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

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