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China natural gas opportunity for Chevron, Total and Royal Dutch Shell

THE WALL STREET JOURNAL

Total Makes China Plans

Firm to Decide in ’09 on Whether to Invest in Sulige Gas Project

BEIJING — Total SA expects to make a final investment decision on a major natural-gas block in northern China in the middle of 2009 after submitting a development plan to China National Petroleum Corp., a senior executive at Total said Wednesday.

Charles Mattenet, senior vice-president for exploration and production in Asia and the Far East, said $1.5 billion to $2 billion will initially be invested at the South Sulige block in Inner Mongolia if the development plan is approved by CNPC and the Chinese government.

China’s desire to boost natural-gas output and master advanced drilling technology has led it to open up a handful of onshore blocks to foreign partners, including Chevron Corp., Royal Dutch Shell PLC and Total.

The Chinese government aims to have gas account for 5.3% of the country’s energy mix by 2010, almost double the 2.8% share in 2005.

The South Sulige block, which covers an area of 2,390 square kilometers, contains tight gas which means the flow of gas through the rock is limited.

Mr. Mattenet said the French company has so far spent around $130 million on the South Sulige block since signing a contract for the evaluation, development and production of natural gas with CNPC in March 2006.

Total plans to drill around 2,000 wells at South Sulige over the life of the field, projected at around 20 to 25 years, he said.

Drilling the wells would account for around 80% of the expenses of developing the field, he added. Some of the gas reservoirs at South Sulige are located at depths of around 3,500 meters.

Total has proven expertise in developing gas and oil reserves at great depth, in areas with difficult terrain and in developing reserves with high sulfur content, the company’s China Web site said.

“Assuming we have a positive final investment decision in mid-2009, then our plan is to start gas production in mid-2011, and have plateau production of about three billion cubic meters a year around 2014,” Mr. Mattenet said.

However, he added that if the performance of the first 100 to 200 wells drilled in the block exceeded forecasts, then Total may revise its expectations for peak gas production up to five billion cubic meters a year.

The South Sulige block is part of the Sulige field, one of the most resource-rich areas in China, and itself part of the giant Changqing oil and gas field.

Sulige has proven reserves of more than 534 billion cubic meters, according to a statement on CNPC’s Web site.

Gas produced by Total will be sold to CNPC’s PetroChina Co. unit and moved by pipeline to Beijing to be sold to a mix of customers, including households, industry and other commercial users, Mr. Mattenet said.

China last raised natural-gas prices on a nationwide basis for industrial users in November 2007, while freezing them for households that were grappling at the time with higher food costs and pressures on their budgets.

The contract for the South Sulige block represents Total’s sole upstream asset in China, but Mr. Mattenet said the company was keen to expand its footprint further.

Total said separately that talks with China National Offshore Oil Corp. over a final sale-and-purchase agreement for up to one million tons of liquefied natural gas exports annually to China were at “an advanced stage.”

—Renya Peng contributed to this article.Write to David Winning at [email protected]

WALL STREET JOURNAL ARTICLE

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