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PetroChina Boosts Shell Ties With 20% Stake in Shale Project

February 02, 2012, 11:40 AM EST

By Bloomberg News

Feb. 3 (Bloomberg) — PetroChina Co., the country’s biggest energy producer, boosted ties with Royal Dutch Shell Plc after agreeing to buy a 20 percent stake in its Groundbirch shale-gas project in Canada.

Shell will remain the operator of the project, Mao Zefeng, the Beijing-based senior assistant secretary to PetroChina’s board, said by telephone yesterday. He declined to give the value of the transaction.

PetroChina plans to pay more than $1 billion for a stake in the Groundbirch property, Hong Kong-based FinanceAsia reported on its website, without saying where it got the information. Shell and PetroChina’s parent agreed in June 2011 to increase cooperation in energy exploration in China, estimated to hold the world’s largest reserves of shale gas.

“Although PetroChina will gain just a minority stake, the firm can re-deploy any advanced technologies acquired overseas back home to better exploit China’s vast shale-gas reserves,” Gordon Kwan, head of energy research at Mirae Asset Securities Ltd. in Hong Kong, said by e-mail.

The deal with Europe’s biggest oil company is an extension of the companies’ cooperation in China, Mao said. Shell and China National Petroleum Corp., PetroChina’s parent, completed the country’s first horizontal shale-gas well in March.

LNG Exports

“The shale-gas project will continue to supply Shell’s customers in North America,” Mao said. “In the long term, we will explore the possibility of exporting it to Asia in the form of liquefied natural gas.”

PetroChina won’t release detailed “numbers” on the deal with Shell as the size of the transaction isn’t big, he said.

“I can confirm that CNPC will join us in Canada,” Shell’s Chief Executive Officer Peter Voser said in London yesterday. “It’s part of our global partnership to optimize our business working environment inside and outside China.” He declined to give the value of the deal.

The unit of CNPC has gained 4.1 percent in Hong Kong trading in the past year, compared with the 13 percent slump in the benchmark Hang Seng Index. The stock rose 1.9 percent to close at HK$11.62.

PetroChina expects to surpass its target of producing 1 billion cubic meters of shale gas in 2015, Mao said in an interview in Beijing. Commercial output of “a few hundred million” cubic meters is possible by 2013, according to Mao.

“We’re making good progress in drilling,” he said. “The question is now not whether China has shale gas, but how we can streamline the production process and deliver the scale.”

Chinese Shale Gas

PetroChina and domestic rivals are seeking technology to tap China’s shale gas resources through partnerships and acquisitions. Cnooc Ltd. acquired stakes in U.S. shale-gas acreage from Chesapeake Energy Corp. for a total of $1.65 billion in February 2011 and November 2010.

China, which has yet to produce shale gas commercially, may hold 1,275 trillion cubic feet (36 trillion cubic meters) of the fuel, almost 50 percent more than the U.S., according to the Energy Information Administration. The Chinese government held its first auction of shale-gas exploration rights last year.

“The overall environment is good for commercialization of unconventional gases, as tough carbon emissions guidelines have made natural gas the cleaner energy resource compared with oil and coal,” Mao said.

China plans to ease price controls and allow domestic fuel suppliers to earn a profit. Gas importers are losing money as they typically buy at overseas rates that are higher than the fixed domestic prices they are allowed to charge customers.

“The reform on the natural-gas price mechanism makes the commercial production of shale gas more likely, as a higher price will certainly provide more incentive for energy companies to speed up production,” Mao said.

–Guo Aibing and Chua Baizhen. Editors: Stephen Cunningham, Randall Hackley.

To contact the Bloomberg staff on this story: Aibing Guo in Hong Kong at [email protected]

To contact the editor responsible for this story: Amit Prakash at [email protected]

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