Reuters | Nov. 1, 2000
SINGAPORE -- China, hoping to make the most of the
current wave of interest in its rapidly expanding energy sector, is stepping
up a drive to lure overseas investors into upstream oil and gas exploration.
But a dismal success rate for foreign firms in the search for onshore
resources and an historic tendency for China to keep the most prospective
areas for itself, has left international companies wary of becoming too
heavily committed to land-based exploration projects.
"China has a good track record in offshore, where they (foreign companies)
are confident in achieving a win-win solution," Nie Shangyou, northeast
Asian manager with Houston-based IHS Energy Group told Reuters.
"Onshore, the companies will be closely watching for any new blocks on
offer. They need to be convinced that China is ready to offer onshore blocks
with sound prospects."
About 90 percent of China's 3.6 million barrels per day (bpd) of crude
output comes from onshore fields.
Beijing opened the onshore sector to foreign investors in 1985, but interest
has waned because of a lack of discoveries after throwing billions of
dollars into dry wells.
PetroChina, which holds the majority of onshore operations, had proven
reserves of 11 billion barrels of crude and 24.6 trillion cubic feet of
natural gas at the end of 1999.
But after decades of sustained high onshore production, China now faces a
decline in output at aging fields, especially in the east of the country. The slow pace of opening the onshore sector and a lack of own investment has
led to a rising dependence on foreign oil. China's crude imports in 2000 are expected to surge more than 60 percent from 1999 to a record 60 million tons, the equivalent of one-third of domestic output.
A senior official with PetroChina, China's largest oil producer, said the
company was in pursuit of foreign capital and technology and would offer
blocks with better prospects as well as improved tax breaks.
"We are considering more liberal policies such as exemption to income tax
for the initial two years and a lower tax rate for the next three years
after fields are in production," he said.
PetroChina in September put on sale 15 blocks in the Bohai Bay Basin in
northeast China, 12 of which were for development with proven in place
reserves of 657 million barrels of oil.
The PetroChina official said more exploration blocks would be offered soon
in the northwest Xinjiang Tarim Basin and gas development blocks in the
northwest Ordos Basin.
GAS REKINDLES ONSHORE INTEREST
Recently foreign interest has been diverted away from oil to natural gas,
which Beijing has elevated to high priority status.
The government is determined to have in place in the next three to five
years a massive pipeline infrastructure to ship gas from the remote, poor
west to the affluent east of the country. The plan includes a
4,167-kilometer trunk line.
"With this gigantic pipeline set to be built around 2004, gas blocks along
the line will be very attractive," said Nie.
Royal/Dutch Shell, Agip and Enron have sealed gas exploration and
development contracts in northwest China's Ordos and Qaidam Basin and
southwest Sichuan province.
"The progress and success of these three contracts will be closely monitored
by any additional investors," said Nie.
Some USD 7 billion have so far been ploughed into China's offshore sector,
which continues to attract healthy interest small and medium-sized
independent oil players.
Global majors including Shell and BP are also looking to lock in upstream
deals with China National Offshore Oil Corp. (CNOOC), which dominates
offshore production.
CNOOC holds proven reserves of 1.8 billion barrels of oil equivalent, or the
equivalent of 23 years of production based on 1999 output of 209,800 barrels
per day.
