FAR EAST

Economic recovery improves outlook

With the recession winding down, and domestic growth resuming, foreign operators are looking again at the area’s vast investment potential

China

The organization of China’s petroleum industry is in the process of changing, as some of its largest companies seek investments through initial public offerings (IPOs). Last year, four companies controlled the industry. China National Petrochemical Corp. (CNPC) operated in the North and West, China National Petroleum Corp. (Sinopec) in the South and East. China National Star Petroleum Corp. (CNSPC) was created to introduce competition for CNPC. And China National Offshore Oil Corp. (CNOOC) operates and participates in the country’s rapidly growing offshore oil / gas operations.

Sinopec has announced that it will take over CNSPC. This will open some opportunities for the company in CNPC areas, such as exploration areas in the gas-prone Sichuan and Ordos basins and West Tarim basin. CNSPC also held some gas-prone acreage offshore near the Ping Hu development in the East China Sea. CNPC has also undergone a massive restructuring, with all domestic upstream / downstream, oil / gas assets transferred to PetroChina, which will now control more than two-thirds of China’s oil / gas production and pipelines.

At year-end 1999, 41 offshore blocks were under license: 49% in the Pearl River Mouth (PRM) basin, 29% in the Bohai Gulf and 10% each in Yinggehai basin (SW of PRM in the South China Sea) and the East China Sea. Most onshore foreign participation is in the "more challenging" northern / western areas, and for technical assistance contracts for enhanced recovery in several mature-field areas.

Exploration. According to Wood Mackenzie (WM), foreign operators drilled only four onshore exploration wells last year, the same number as in 1998. CNPC and Sinopec had considerably larger onshore activity; the estimated number of exploration wells they drilled are 650 and 280, respectively. Most of their drilling is related to established-field areas, searching for new reservoir blocks, etc. Offshore, the foreign operators’ 17 exploration wells resulted in several important discoveries. The number of wells drilled by CNOOC is not known; in 1997 and 1998, it reported about 20 exploration wells drilled per year.

    Onshore, Enron Oil and Gas drilled its first gas well in Sichuan province with the Jiao 58-E in Bajiaochang field; Texaco drilled two wells in the province on Ya’an block, Sanhenan 1 and Qionsui 2. In North China basin, Shell P&A’d Qing 22 after two low-key DSTs. CNSPC had a discovery in Luenpola basin in Tibet with Luenqian 3 – the world’s highest wildcat at 15,000-ft elevation. CNPC reported four oil discoveries in North Dagang, Zhijing oil field and eastern Ansai in Shaanbei, and Daqingzijing in Songliao basin. In Tarim basin, CNPC made several gas discoveries, with total reserves estimated at 7 Tcf, bringing forward plans for a major gas trunkline to east China.

Two new licenses were announced. Sinopec awarded Genting Oil and Gas an EOR contract for the 1980 Zhuangxi oil field in North China basin. And Shell signed with CNPC to evaluate gas reserves on Changbei block in Ordos basin; this contract was negotiated for six years. WM believes Beijing power markets are the "thrust" of Shell’s marketing campaign – a 28-in., 860-km pipeline (1997) is apparently underutilized. Nippon Mitsubishi Oil Corp. acquired 20% in Sunwing Energy’s Kongnan PSC in North China basin; Sunwing and Black Sea had already merged, creating Ivanhoe Energy. Kerr McGee relinquished Laopu block in North China basin after one dry hole.

Offshore China, supply boat workers prepare a mooring rope as they approach the Bohai 7 rig appraising a significant discovery in Bohai Bay. (Photo courtesy of Phillips Petroleum)

    Offshore, WM says activity will likely be high this year, following seven discoveries in 1999. A total 17 exploration wells were drilled by foreign operators, including 11 wildcats and six appraisals. The most significant discovery was Phillips’ Peng Lai 19-3 field in Bohai Gulf – perhaps China’s biggest offshore oil find – with Peng Lai 19-3-1 using the Bohai 4 jackup in 80-ft water. By year-end, seven appraisals had been drilled or spudded, and another four are planned this year; up to 400 MMbbl reserves are estimated. Kerr McGee had a Bohai Gulf discovery on B 4/36 with Caofedian 11-1-1; an appraisal was spudded with the Bohai 6 jackup in 80-ft water. And Santa Fe Snyder continued its campaign on B 15/34 in the South China Sea by evaluating the Ursa discovery (1998) with Panyu 4-2-2. Its fourth well in 1999, Panyu 5-1-1 found a second field, known as Bootes, using the Nan Hai VI semi in 300-ft water.

Chevron drilled four wells in early 1999 with questionable results – three wildcats in Bohai and one on B 63/15 in the South China Sea. Appraisals of the Luda 28-1 discovery (1998) indicated the field was subcommercial; Luda 17-1-1 was spudded then sidetracked, testing small volumes. The ACT group (Agip, Chevron, Texaco) was active in the South China Sea, drilling a wildcat on B 16/8E in the PRM basin; results were "disappointing."

For licensing, Santa Fe Snyder signed for a PSC on B 26/35 in the South China Sea and two PSCs in B 16/02 and 16/05 in the PRM, NE of its Ursa and Bootes discoveries. It will do seismic and drill two wells on 16/02, one on 16/05; five wells have been drilled on the two blocks. Bligh Oil and Minerals signed a PSC with CNOOC for B 22/12 in Beibu Gulf, including Weizhou 12-8 structure. CNSPC discovered Chunxiao field with Chunxiao 3 in the East China Sea; it has drilled several wells on the structure. And in early 2000, Shell signed with CNOOC to explore B 15/12 after running 3-D seismic.

Development. China is aggressively working on its existing onshore oil fields, and expanding gas reserves to justify new pipelines to eastern markets. CNPC approved a Sino-American plan for the Zhaodong area to drill and rework 100 wells. Sunwing (Ivanhoe) completed Phase 1 of the pilot program on Kongnan block in Dagang in North China basin; four wells are planned in Phase 2 to define EOR. Digital Gas says it has agreed to help exploit Shengli and Daqing fields, plus Liaohe and Talimu. The 300-mi-long gas pipeline from Changqing field through five cities has been put into service. Plans to accelerate western China include Qinghai oilfield reserve increase in Qaidam basin. Shapingchang gas field will be put into production in Chongqing, with 11 new wells.

In Tarim, CNPC will lay a 2,600-mi gas pipeline from south Xijiang in Tarim to the Yangtze River Delta. Tarim now boasts 11 large / middle-sized fields with 10 Tcf reserves – two fields, Kela 2 and Yenan 3 each exceed China’s largest gas field. Shell and PetroChina have signed to study development / marketing for Changbei gas field in central China. The infrastructure from Ordos basin will be part of the distribution. Sheyang gas field in Jiangsu province is being developed to serve eastern coastal cities. And WM notes two pipelines completed in Ordos basin last year.

Offshore, in Bohai, CNOOC’s Bohai Oil Corp. began production from Jinzhou 9-3 using an artificial island and two wellhead platforms; 16 wells were drilled in 1999 in the eastern area. The company began laying the 44-mi Suizhong 36-1 oil pipeline to develop the field. Two development contracts were awarded for Qinhuangdao 32-6 oil field, including an FPSO and 32-6 A and B jackets. In the South China Sea, Huizhou 32-5 oil field came onstream in early 1999, using the 26-1 platform 2.5 mi away; CACT group placed a contract for work to tie back the 26-1N subsea well to 26-1. CNOOC also brought on offshore fields Weizhou 12-1 and 11-4.

Statoil will extend production from Lufeng 22-1. And Norway’s Lufeng Development Co.’s contract was extended; the field has five subsea horizontal producers. Offshore gas is a key part of China’s SE Coast regional development. In the western South China Sea, four gas fields and 15 gas-bearing structures have been found; Yacheng 13-1 is producing. In the East China Sea, two gas fields and eight gas-bearing structures have been found; Pinghu field, 250 mi from Shanghai, is onstream. In the Bohai Sea, one gas field and 18 structures have been discovered.

WM estimates offshore sales gas production in 1999 at 424 MMcfd, with offshore liquids at 323,000 bpd. Total gas production from China is in the range of 2.1 Bcfd and accounts for about 3% of energy use; consumption is expected to triple by 2010, using more pipeline gas and LNG imports. This involves construction of major power plants and power grids. China remains a net importer of crude with some exports, primarily to Japan from Daqing field.