CNOOC seeks bids for South China Sea blocks

(Source/ CNOOC, Graphics/GT)

Foreign firms will want slice of large market, experts say

A tender of 22 offshore blocks from China National Offshore Oil Corp (CNOOC) could be very attractive to foreign companies, given the vast demand for oil and gas in the Chinese market amid global overcapacity, Chinese experts said on Sunday.

CNOOC, the largest offshore oil and gas producer in China, unveiled a tender on Wednesday inviting foreign companies to bid for 22 blocks in the northern part of the South China Sea.

The blocks cover an area of 47,270 square kilometers and are available for cooperation between CNOOC and foreign companies, according to CNOOC's statement on its website.

Out of these 22 blocks, 16 are located in the eastern part of the Pearl River Mouth Basin and two in the western part of the basin, while four are in the Beibuwan Bay.

China is now the largest importer of oil and gas across the globe, and its large market is attractive to foreign firms that will compete for the offer, said Han Xiaoping, chief analyst at energy website china5e.com.

Han added that despite disputes relating to the South China Sea, foreign companies should not be worried about the stability of these blocks.

"The blocks open for bidding are less sensitive compared with other areas in the South China Sea in that they are mainly in the Pearl River Mouth Basin, which is close to China's coastline," Han told the Global Times on Sunday.

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times on Sunday that "foreign companies that will make large investments there are likely to be cautious because such areas are still facing some disputes."

Coming cooperation

Two days after CNOOC tendered out the blocks, the Chinese company signed a production sharing agreement with Canadian oil producer and refiner Husky Energy Inc on Friday for exploration of block 16/25. The block is located in the Pearl River Mouth Basin, about 150 kilometers southeast of the Hong Kong Special Administrative Region, Husky said in a statement posted on its website.

Husky expects to drill two exploration wells in the shallow water block in 2018.

Once the development and production phase has begun, CNOOC will have the rights to up to 51 percent of the participating interest in any commercial discoveries in the block, according to Husky.

Husky and CNOOC have long cooperated in oil exploration in the South China Sea, and the deal offers a good model for other foreign firms that would like to seek ties with the Chinese oil and gas producer, Han noted.

"CNOOC needs support from Western companies because they possess advanced technology and ample exploration experience that could help improve CNOOC's deepwater expertise and technology, and they can shoulder potential risks together," Han said.

As China's technology has advanced and the conditions for exploration have become mature, CNOOC will go deeper and further in the area step by step in the future, Han said.

Good timing

Domestic and foreign oil companies' confidence has increased this year thanks to the rise of the oil price in global markets, leading to recovery and increasing investment in the sector, Lin said.

"Therefore, the outcome of CNOOC's tender is likely to be better than in previous years," he said, noting that global investment in oil exploration has declined in the past three years.

"But due to the comparatively high exploration costs in some areas of the South China sea, whether to immediately start exploration work still depends on the oil price in the world market," Lin noted.

Many foreign companies would like to invest this time, Lin forecast.

The tender will close on September 15, 2017, CNOOC said in a statement posted on its website.