By Wang Ying
Nov. 24 (Bloomberg) – Cnooc Ltd. and its partners may spend about 200 billion yuan ($29 billion) to develop fuel deposits in the South China Sea in the nation’s biggest push to tap reserves off the coast.
The investments between next year and 2020 include an estimated 15 billion yuan by parent China National Offshore Oil Corp. to build deepwater drilling equipment, Luo Donghong, chief development engineer at Cnooc’s Shenzhen unit, told reporters and analysts on Nov. 22. He didn’t name the companies that will partner China’s biggest offshore oil producer.
Rising energy demand in the world’s fourth-biggest economy is prompting state-run Cnooc to boost exploration in an area where nations including Vietnam and Indonesia have laid territorial claims. The company will drill twice the depth of its existing wells off the coast of China as its global rivals cut spending after oil prices fell 66 percent from its July record.
“Huge potential lies untapped for the company in the South China Sea, which is largely unexplored,” Wang Aochao, a Shanghai-based analyst with UOB-Kay Hian Ltd., said by telephone today. “The company will need to tackle the relationship between countries well.”
The South China Sea, covering 3.5 million square kilometers, stretches from Singapore to the Straits of Taiwan and is a third of the size of China. In July, the Chinese government opposed a plan by Exxon Mobil Corp., the world’s biggest oil company, to explore for fuel in the area with Vietnam, saying the project marks a breach of its historical claim to the region.
Cnooc climbed 2.6 percent to HK$5.20 in Hong Kong trading at 12:14 p.m. while the benchmark Hang Seng Index dropped 1.1 percent.
China, the world’s second-biggest oil user, is expediting projects including nuclear power plants, gas pipelines and oil refineries to help stimulate the domestic economy and meet future energy demand. The country will overtake the U.S. as the world’s biggest oil and gas consumer in about five years, Royal Dutch Shell Plc said in September.
“The company will maintain its exploration budget for the South China Sea next year,” Li Fanrong, general manager of the unit of the Beijing-based company, said in the southern city of Shenzhen. “The investment is only a rough estimate that reflects the immense potential of oil and gas reserves in the area.”
Geological fuel reserves in the deepwater fields of the South China Sea may reach 22 billion barrels of oil equivalent by 2020 and overall annual output may rise to 350 million barrels, Luo said. China may consume 8.2 million barrels of oil a day in 2009, according to the International Energy Agency, the Paris-based adviser to 28 oil-consuming nations.
China’s demand for natural gas is “huge” in the coastal provinces of Guangdong, Fujian and Zhejiang, said Li.
Cnooc and its future partners aim to drill up to 3,000 meters deep in the offshore area by 2020, compared with the current maximum depth of 1,485 meters, said Luo. “Deepwater is a key area for future incremental reserves,” he said.
The actual spending for the South China Sea will depend on other variables including the price of raw materials such as steel, said Li.
Cnooc’s current exploration partners in the South China Sea include Devon Energy Corp., Husky Energy Inc. and Anadarko Petroleum Corp., Luo said. The Chinese explorer will invest $1.04 billion in exploration in 2008 as it aims to at least replace any reserves it depletes, Cnooc said in January.
The company plans to produce between 195 million and 199 million barrels of oil equivalent this year, compared with last year’s output of between 169 million and 171 million barrels, it said then.
Last Updated: November 23, 2008 23:17 EST