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CNOOC May Double O & G Production Off South China

Source: Bloomberg 12/6/2009, Location: Asia

Cnooc Ltd., China’s biggest offshore oil explorer, may double its crude oil and natural gas production in the western part of the South China Sea to meet rising energy demand in the country.

China’s third-largest oil company may expand its output in the area to 20 million cubic meters by 2015 from 10 million cubic meters, or 38.97 million barrels, last year, Ke Luxiong, deputy general manager of Cnooc’s Zhanjiang division, said after a media tour of the unit’s operations in the southern city.

Increased energy demand in the world’s fastest-growing major economy is prompting state-controlled Cnooc to intensify exploration in an area where countries including Vietnam have laid territorial claims. A number of foreign companies have shown “immense” interest in joining Cnooc’s bid to develop deepwater blocks in the region, Xie Luhong, head of the Cnooc unit, told reporters in Zhanjiang in Guangdong province Dec. 4.

“The deepwater areas are said to hold a significant amount of resources,” Qiu Xiaofeng, a Shanghai-based analyst with China Merchants Securities Co., said by telephone. “Cnooc may need to enlist help from overseas partners in the beginning due to potential technical difficulties.”

Cnooc plans to work with foreign partners to drill the first deepwater wells in the area next year, Xie said, without naming the companies. “The water depth might be between 1,500 meters (4,921 feet) and 1,800 meters,” he said. The company currently drills at a water depth of as much as 180 meters in the region, according to Xie. “There is huge potential in the deepwater blocks in the South China Sea, most of which are expected to hold natural gas resources,” Xie said.

Cnooc has doubled since March 6 in Hong Kong trading compared with the 87 percent gain in the benchmark Hang Seng Index. The stock fell 0.7 percent to HK$12.06 at 12:19 p.m.

Deepwater Resources
Cnooc and its partners may spend about 200 billion yuan ($29.3 billion) through 2020 to develop energy reserves in the South China Sea in the country’s biggest push to tap oil and gas resources off its coast, Luo Donghong, chief development engineer at Cnooc’s Shenzhen unit, said in November last year.

The western part of the South China Sea is Cnooc’s “most important” natural-gas producing area, the company said on its Web site. Exploration partners include BG Group Plc, Devon Energy Corp. and Roc Oil Co., Xie said. As of the end of last year, Cnooc had proven reserves of oil and gas of 614.4 million barrels of oil equivalent in the region, data on its Web site show. That’s 24.4 percent of the company’s total.

Cnooc had targeted to increase production in the area by about 13 percent to 44.069 million barrels this year, Xie said. “The goal can be met under normal conditions,” he said, without elaborating.

Fuel Demand
Cnooc, which gets more than 70 percent of its output from domestic offshore fields, is boosting production to benefit from a rebound in fuel demand as China’s economy recovers. The company said in January it aims to produce 225 million to 231 million barrels of oil equivalent this year.

China may use 8.3 million barrels of oil a day this year, 9.8 percent of global consumption and 46 percent of Asia’s, data from Paris-based International Energy Agency show.

In July last year, the Chinese government opposed a plan by Exxon Mobil Corp. to explore for energy in the South China Sea with Vietnam, saying the proposal marks a breach of its historical claim to the region.

The South China Sea, spanning 3.5 million square kilometers (1.4 million square miles), stretches from Singapore to the Straits of Taiwan and is a third the size of China.

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