June 8, 2020 [Argus Media] – The Chinese government wants its state-owned firms to increase cooperation offshore China this year, where it sees greater potential for boosting the country’s oil output.

 
PetroChina and CNOOC signed an agreement late last month to increase “strategic cooperation” but did not disclose areas in which they would cooperate.

All three state-controlled firms, PetroChina, Sinopec and CNOOC, announced leadership changes earlier this year, as part of a regular management reshuffle in Beijing. But they are expected to face huge challenges this year in a persistent low oil price environment.

“Chinese state-run firms have already been sharing their expertise offshore, but the new leadership will accelerate this,” an official from one of the firms said.

It is unclear which part of offshore China the companies will boost cooperation in. But CNOOC has in the past tied up with Sinopec and PetroChina for exploration in the Bohai Bay area offshore northeast China, near where Sinopec’s Shengli and PetroChina’s Liaohe oil fields are located, following a directive from president Xi Jinping to boost domestic output to reduce the country’s import reliance.

CNOOC has also recently touted a huge discovery at the Kenli 6-1 field in the Bohai Bay. Its 3pc increase in domestic crude output to 728,000 b/d last year contributed to a marginal rise in overall Chinese crude production by 1pc to 3.8mn b/d.

PetroChina is stepping up exploration efforts in northwest Xinjiang province to offset declines at its Daqing oil field in northeast Heilongjiang province. But its Tarim unit in Xinjiang estimates that around 39pc and 57pc of oil and gas reserves, respectively, of China’s remaining onshore reserves are buried in deep reservoirs. Those in the Tarim basin need to be drilled to a depth of 6,000-10,000m.

Beijing is further opening up upstream exploration to private-sector and foreign participation this year, allowing these companies to directly explore and develop acreage released by the government as long as they have a China-registered office and meet other requirements. The government has combined exploration and development licences into one system to speed up discoveries. Beijing also wants state-run firms to speed up their relinquishment of blocks that they are no longer actively exploring.

But it is unclear if further cooperation among state-controlled firms will yield any concrete results, and the country may need to attract more foreign investment to speed up exploration.

CNOOC issued a tender last month — its first this year — for more foreign cooperation on 15 oil and gas blocks, totalling 9,453km². The blocks are located in the Bohai Bay; East China Sea; Pearl river mouth basin, where more than half the blocks lie; Qiongdongnan basin in the South China Sea; and Yinggehai basin in the western section of the South China Sea.

It is unclear if the tender has attracted any interest. Offshore tenders in the past have tended to attract limited interest from foreign bidders, as more prospective acreage has already been taken up by the three oil giants. It is typical for CNOOC to reoffer blocks that it has tendered in the past and found no takers, a company source said.
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