China signaled its openness for business with a raft of deals that’ll give oil majors, including Royal Dutch Shell Plc, new opportunities to develop fields in partnership with the nation’s biggest offshore explorer.
China National Offshore Oil Corp. said in Beijing on Dec. 18 that it had inked oil and gas accords with nine firms. The signing ceremony followed President Xi Jinping’s address to party cadres marking 40 years of reform and broadly underlining the nation’s commitment to global trade.
The agreements cover 64,000 square kilometers in the Pearl River basin, to a depth of up to 3,000 meters. In addition to the Netherlands-based Shell, France’s Total SA and U.S.-based Chevron Corp. were also awarded parcels. All three majors hold existing production-sharing contracts with CNOOC. The other firms involved are: ConocoPhillips, Equinor ASA, Husky Energy Inc., Kuwait Foreign Petroleum Exploration Co., Roc Oil Co., and SK Innovation Co.
“It’s no coincidence that CNOOC made the statement a couple of hours after President Xi’s speech,” said Tian Miao, a Beijing-based analyst at Everbright Sun Hung Kai Co. “It’s only reasonable to assume this is one of the real actions China is taking to show the world it’s willing to open businesses to the whole world.”
Chinese President Xi Jinping (Mark Schiefelbein/Associated Press)
CNOOC has signed more than 200 PSCs since its inception in the early 1980s, even as it has increasingly relied on its own resources to tap deep-water projects in Chinese waters — most recently the giant Lingshui 17-2 gas field in the South China Sea. The company has promised to increase spending and raise output, heeding Xi’s call for enhanced energy security as imports grow and the nation contends with the U.S. over trade.
“The agreements will facilitate the establishment of a long term and stable cooperation and share the development opportunities to a certain extent in the Strategic Cooperation Areas, creating conditions for the final signing of contracts,” CNOOC’s listed unit said in a statement.
At the ceremony, Chairman Yang Hua said the company’s aim is to boost output to 2 million barrels of oil equivalent a day by 2025, from about 1.3 million last year, and that agreements with foreign companies could extend beyond upstream ventures in China to broader cooperation in other geographies. He also said the government is studying policies to support exploration and development of offshore oil and gas, and that “the sector will open wider to international players going forward.”
The smallest of China’s big three oil and gas firms, CNOOC is its favored vehicle for international cooperation and holds the vast majority of reserves in Chinese waters. About three-quarters of its offshore production is conducted independently, with the remainder tied up in PSCs, including deals signed in July with Australia’s Roc Oil and Smart Oil LLC of the U.S. The agreements typically give CNOOC the rights on up to 51% of any commercial discoveries.
“From a business perspective, inviting international oil companies to join domestic offshore exploration helps reduce investment risks and bring in more offshore drilling expertise,” said Tian. “It definitely helps CNOOC’s promise to quickly raise oil and gas output from domestic fields.”
Xi’s address in the capital disappointed those hoping for specific policies to counter a slowing economy and show the nation’s intent to free up its markets. Instead, the president focused more on the accomplishments of the nation’s Communist Party.