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The Wall Street Journal: ConocoPhillips to Sell Chinese Onshore Block

By DAVID WINNING
September 28, 2007

BEIJING — U.S. oil major ConocoPhillips is offering its Chuan Zhong block in China’s Sichuan province to potential buyers in a rare sale of a Chinese onshore oil and natural-gas asset by a foreign company.

The Chuan Zhong block, which covers an area of 118 hectares in southern China and includes the Ba Jiao Chang gas field, produced an average of 10.3 million cubic feet of natural gas a day in 2006.

By disposing of the Chuan Zhong block, ConocoPhillips will be able to focus more resources on the offshore Peng Lai field in northern China’s Bohai Bay, which is China’s largest oil discovery by a foreign company to date.

ConocoPhillips holds a 100% working interest in the block through an agreement with China National Petroleum Corp., China’s largest oil company by output and the parent company of PetroChina Co.

“We are in the process of marketing the asset but have not yet concluded a sale,” said a spokesman for ConocoPhillips.

China’s onshore oil and natural-gas sector remains largely closed to foreign companies, with production tightly controlled by PetroChina and its main domestic rival, China Petroleum & Chemical Corp., known as Sinopec.

Only a handful of foreign companies have secured a foothold so far, with Royal Dutch Shell PLC and Total SA drilling in the Ordos Basin in northern China’s Inner Mongolia region.

However, China’s rapidly growing energy needs and a lack of technology for tackling complex oil and gas fields have created opportunities for foreign companies.

Chevron Corp. last month won the right to help develop PetroChina’s high-sulfur Luojiazhai gas field in Sichuan.

ConocoPhillips acquired the Chuan Zhong block through its $35.6 billion takeover of Burlington Resources in March 2006, a deal that also gave it a 24.5% stake in the Panyu oil fields in the South China Sea.

By the end of last year, 19 wells had been drilled in the Chuan Zhong block and development was ongoing, ConocoPhillips said.

ConocoPhillips’s share of natural-gas output from the Chuan Zhong block totaled 6.93 million cubic feet per day last year. In addition, the block produced small amounts of condensate.

Sichuan has yielded several major finds in recent years putting the province on course to become China’s key onshore natural-gas-producing hub.

Write to David Winning at [email protected]

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