China deepens its resolve on energy security

Jennifer Pallanich
Friday, July 9, 2010

Chinese companies have stepped up their activities over the last year, and two recent reports from analysts Infield Energy Analysts and Wood Mackenzie suggest increased activity in the near future, especially as the NOCs venture into deeper waters.

In China's deepwater campaign, Infield forecasts a large-scale home-grown exploration and development campaign off China.

Over the next two decades, CNOOC plans to invest $30 billion in deepwater plays in the South China Sea with an aim to increase production of oil and gas to over 1 million b/d by 2020. Chinese NOCs, however, have little experience in deepwater operations, the report observes, as 98% of the country's operational platform infrastructure is within water depths of 500m or less.

China is moving into deepwater, though, and the DP3 Hai Yang Shi You 981 - the first deepwater semi to be designed and built in China - left the Shanghai Waigaoqiao Shipbuilding yard in late February. It can operate in waters to 3000m and drill to 10,000m. Additionally, Rongsheng Heavy Industry has built a deepwater pipelay vessel. The Infield paper calls the construction of the semi and pipelay vessel 'China's first steps towards a deepwater campaign'.

Of CNOOC's $30 billion planned investment, $2.2 billion will be used to engineer and fabricate a deepwater MODU, $880 million will go to the fabrication of a 3000m water depth drilling vessel, and $440 million is earmarked for a deepwater pipelay vessel, the paper notes. CNOOC believes the South China Sea is the offshore equivalent of its Daqing oil field, which produced 1 million b/d at its peak.

So far, CNOOC has, as a partner, logged a few deepwater finds offshore China, including the Liuhua 29-1 field and the nearby Liwan 3-1. The latter's FEED is complete, and a development plan was submitted to regulatory authorities earlier this year. Liwan 3-1, discovered in 2006, was the first deepwater discovery in Chinese waters; it holds an estimated 100-150bcm of gas. About a month ago, Husky Energy, operator of both the Liwan 3-1 and Liuhua 34-2 fields, announced an appraisal at its Liuhua 29-1 discovery in 765m of water gave 'encouraging results'.

The Liuhua 29-1 field is Husky's third significant deepwater gas discovery in block 29/26.

Sinopec is also launching a deepwater program and has acquired a stake in block 18 offshore Angola. Sinopec's plan is to gain deepwater experience offshore Angola and use the experience to develop its deepwater assets offshore China, according to the report.

PetroChina has also acquired three deepwater blocks offshore Myanmar. The company plans to start deepwater exploration in the South China Sea in 2015.

In Wood Mackenzie's recent report Chinese NOCs step up international expansion, the firm said its review indicates intense activity over the last year will result in net overseas production reaching a new record level of 1 million boe/d in 2010 from CNPC/PetroChina, Sinopec and CNOOC combined.

'In total the three Chinese NOCs have committed nearly US$25 billion to asset and corporate acquisitions since April 2009, far exceeding previous annual spending,' says Norman Valentine, senior analyst at WoodMac. 'Until recently Wood Mackenzie has characterized international expansion by the Asian NOCs as relatively conservative. Acquisitions over the last 12 months have changed the picture - we estimate that the three Chinese NOCs alone accounted for nearly 20% of global deal value in the first quarter of 2010.'

WoodMac anticipates this increased activity will continue.

'With large-scale deals of over US$9 billion committed so far in 2010, we expect the Chinese NOCs to maintain high levels of deal activity,' Valentine says.

The firm estimates Chinese companies have accessed 2 billion boe of commercial reserves.

As a result, Valentine says, WoodMac expects the NOCs will produce over 1 million boe/d from overseas operations this year.

WoodMac concludes that while it may take some time for Chinese NOCs to be considered leading players in the industry's emerging resource segments, Chinese NOCs are well positioned to maintain high levels of corporate activity in the future and build on the milestone production levels of 2010. OE

Categories: Energy Deepwater Oil Asia

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