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The Australian: CNOOC offered Shell oil interest

Nigel Wilson, Energy writer
November 15, 2007

CHINA National Offshore Oil Corporation could increase its stake in the vast North West Shelf project in Western Australia.

The aggressive Chinese Government-owned company, which already has a 5.3 per cent interest in NW Shelf exploration permits, production licences and related reserves, has been offered Shell’s NW Shelf oil business – a move that would leave Shell with gas only.

The deal, if it goes ahead, would be worth more than $500 million.

The assets for sale, under Shell’s long-established portfolio management program, are mainly involved with its one-sixth share of the Cossack Wanaea project operated by Woodside.

Shell Development Australia spokeswoman Anita Harben yesterday refused to confirm that negotiations were taking place, on grounds of commercial confidentiality, but said that portfolio management was a key source of value for Shell.

“We continue to focus our portfolio on strategic assets and remain committed to liquefied natural gas growth in Australia,” she said, reinforcing the view that Shell would continue with its big investment in Browse Basin gas exploration and its 25 per cent stake in the Chevron-led Gorgon LNG development.

Shell has a stake in about 20 trillion cubic feet of gas, or about 15 per cent of discovered gas resources in Australian waters, and is involved in a number of major gas commercialisation projects.

In the past three years, it has returned to exploration in its own right in Australia concentrating on the potentially huge Browse Basin gas province.

Shell Development Australia is responsible for the upstream exploration, production and oil and gas commercialisation side of Shell’s Australian business.

It decided in mid-2005 to dispose of its interests in the producing Laminaria and Corallina oil fields in the Timor Sea, which have suffered from natural production decline.

Shell has previously argued that it is happy with its 34 per cent stake in Woodside, despite Federal Treasurer Peter Costello having ruled against its $10 billion takeover bid in 2002 on national interest grounds.

CNOOC has been frequently mentioned as a possible buyer of the Shell Woodside stake and more recently as a potential suitor for Woodside.

Such a move would create difficulties for the Australian Government, whichever party wins the November 23 election, because of concerns about national energy security.

Production from the Wanaea, Cossack, Lambert and Hermes fields on the Shelf about 110km from Karratha is handled by the Cossack Pioneer floating production storage and offtake vessel, which was commissioned in 1995.

A total of 10 production wells have been drilled in water 80m deep.

Crude oil output from the fields has been declining in recent years, with production down to a daily total of 73,370 barrels in the September quarter hit by a 12-day shutdown for maintenance. It was designed to produce 100,000 barrels a day.

Chinese interest comes a month after Yang Hua, CNOOC’s chief financial officer, pinpointed the Asia-Pacific region as one of two areas where CNOOC wanted to build its core business.

The Chinese company also holds a 25per cent stake in the China LNG venture, which was established to deliver LNG from the North West Shelf to China’s only operational LNG terminal at Dapeng, in the southern province of Guangdong.

In July, CNOOC strengthened its footprint in Australia by securing a permit to explore in the Bonaparte Basin.

Overseas oil production accounts for about 12 per cent of CNOOC’s total output, although this is likely to jump next year when the first commercial oil is pumped at the Akpo oil field in Nigeria. CNOOC bought a 45 per cent stake in the field early last year.

Additional reporting: Dow Jones Newswires

http://www.theaustralian.news.com.au/story/0,25197,22760135-643,00.html

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