PetroChina eyes South China Sea exploration
By Xiao Xie (China Daily)
Updated: 2004-07-06 08:58

PetroChina, the nation's largest oil producer, is applying for exploration and production licenses for the South China Sea, hoping the move could become a new cash cow as onshore supply has been stagnant in recent years.

Experts said PetroChina's move could intensify the competition in the China's offshore oil and gas sector. But it is difficult to shake the dominance of China National Offshore Oil Corp (CNOOC) in Chinese waters in the short term. It will take time for PetroChina to accumulate enough experience, technology, and talent for the offshore operation which is more complicated and risky, experts said.

The New York and Hong Kong listed PetroChina has applied at the Ministry of Land and Resources for oil and gas exploration and development licences in the southern area of South China Sea, according to the Form 20-F PetroChina has filed to the US Securities & Exchange Commission.

A senior engineer with Exploration and Development Research Institute of China National Petroleum Corp - parent company of PetroChina, said on the condition of anonymity that the government is encouraging domestic oil companies to step up efforts in offshore exploration.

It is a fresh move for the government to increase its oil and gas supply to alleviate the risk for over-reliance on oil imports.

Compared with onshore areas, China's waters are less exploited.

The offshore oil output last year reached 20.9 million tons, up 4.2 per cent from the year before. It makes up 13 per cent of China's total oil output.

Nearly all of China's offshore oil production is produced by CNOOC and its foreign partners.

"The offshore area is too large for CNOOC to work alone," said CNPC's engineer. "The government is co-ordinating the relationship among Chinese oil companies to allow more players in the area."

The engineer also said PetroChina had applied for exploration licenses in the East China Sea and Bohai Bay years earlier. But he said he is unsure whether the licence had been approved.

Traditionally, PetroChina conducts their exploration and development activity onshore and in shallow waters, although there is no legal restriction stopping them from tapping waters deeper than 5 metres.

PetroChina's production has been flat for several years while most of its oil fields have been drying out after decades of use, and few significant findings have been achieved.

The engineer said the new licences, if approved, could contribute to a boost in revenue for the company.

Experts said PetroChina chose the South China Sea as its next target of exploration because CNOOC has done little exploration in the area, making it more likely to find new discoveries.

An industrial insider said if PetroChina's licence is approved, then the three largest oil companies could pursue offshore oil exploration.

Sinopec, the second largest oil company in China, won offshore exploration rights after it acquired China National Star Petroleum Company four years ago.

Sinopec is working with CNOOC, Royal Dutch/Shell Group and Unocal Corp to search for natural gas in the East China Sea.

Experts said, however, PetroChina's participation is unlikely to rock CNOOC's dominance in short term because offshore exploration is more risky.

Offshore exploration costs could run to 5-6 times higher than onshore, according to the insider.

Also, PetroChina lacks the experience, equipment, talent and technology to tap the South China Sea where geographic features are more complicated.

"It could be quite difficult for PetroChina if it works without foreign partners," said the insider.

The current laws and regulations define CNOOC as the sole company to partner with foreign companies to conduct exploration and development in Chinese waters.

But the insider also said PetroChina's approach is significant because it paves the way for it to further apply for the rights to co-operate with foreign partners in the offshore production.

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