BHP to Farm-In to China Deepwater Block

BEIJING, Jan 17, 2008 (Dow Jones Newswires)

BHP Billiton Ltd. (BHP) has agreed to farm into Anadarko Petroleum Corp.'s (APC) deepwater oil and gas block in the South China Sea, and the deal is awaiting official approval, an Anadarko executive said Thursday.

"As far as we are concerned, all our paperwork is done. What we are waiting for is the China government and China National Offshore Oil Corp. to accept and bless" the farm-in agreement, said Ramsey Fahel, president of Anadarko's China unit.

Houston-based Anadarko has a 100% working interest in Block 43/11 under an agreement with China National Offshore Oil Corp., which allows the Chinese company's listed unit Cnooc Ltd. (CEO) to take a majority stake in the block in the event of a commercial discovery.

BHP's agreement with Anadarko involves the Anglo-Australian company taking a 50% stake in Block 43/11, which is adjacent to another block where Canada's Husky Energy Inc. (HSE.T) made a major natural gas discovery, Fahel said. In June 2006, Husky said its gas find in Block 29/26 in the Pearl River Mouth Basin could contain recoverable natural gas reserves of 4 trillion to 6 trillion cubic feet, making it one of the largest natural gas discoveries offshore China.

Fahel didn't disclose how much BHP was paying to farm into 43/11. But he added that Anadarko, which plans to drill its first exploration well at a depth of 3,600 meters in the block in the autumn of 2008, had received a lot of bids to farm into 43/11 before BHP was chosen.

BHP declined to comment when contacted by Dow Jones Newswires earlier.

China hopes that resources hidden beneath the seabed in its territorial waters will reduce its dependence on foreign energy supplies if they can be successfully and commercially brought to the surface.

But it has been forced to rely on foreign partners, as its state-owned oil companies lack the technology to drill in deepwater areas such as the South China Sea on their own.

Cnooc has signed 10 deepwater contracts with foreign companies including Husky, Devon Energy Corp. (DVN) of the U.S. and BG Group (BG.LN) of the U.K.

Across its global operations, Anadarko has drilled almost 250 wells in deep water over the past few years, Fahel said.

Anadarko acquired 43/11 and two producing fields in northern China's Bohai Bay when it acquired U.S. competitor Kerr-McGee Corp. in 2006.

Many analysts expected Anadarko to sell the China assets to pay down billions of dollars of debt taken on during the Kerr-McGee takeover and the parallel acquisition of Western Gas Resources Inc. However, Anadarko decided to keep the China assets in its international portfolio.

Speaking on the sidelines of the Asia-Pacific Exploration and Production conference in Beijing, Fahel said Anadarko is currently producing around 50,000 barrels of heavy crude a day in China.

Anadarko's net share of production is lower as Newfield Exploration Co. (NFX), Singapore Petroleum Co. (S99.SG) and Cnooc Ltd. all have interests in its producing Bohai fields.

The cash flow from its producing assets in China is being used to fund further exploration in the Asia-Pacific region, including targets in Indonesia and Malaysia, Fahel said.

He said Anadarko is currently working on two more platforms in Bohai to supplement the three already in place, with a further platform under consideration.

BEIJING, Jan 17, 2008 (Dow Jones Newswires)