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Shell plans to invest over $500 million on China shale, tight gas play in 2012

Singapore (Platts)–30 Jul 2012/237 am EDT/637 GMT

Shell plans to invest over $500 million this year drilling in shale gas and tight gas acreage in China, its chief financial officer Simon Henry said in an analyst call during its second quarter results announcement Thursday.

“There are several plays in our portfolio with PetroChina. We have two in Sichuan province in the south, southwest, and we have many CBM [coalbed methane] opportunities in the north … We spent around $450 million last year. This year [we plant to spend] over $500 million. We’re drilling about … close to 20 wells this year. It’s still very much in the exploration and appraisal [stage],” Henry was quoted as saying in a transcript of the call, which was out Friday.

State company PetroChina awarded Shell a production sharing contract for the Fushun-Yongchuan shale gas block in central Sichuan province earlier this year — the first shale gas PSC to be awarded in China. Shell also has a PSC for the Jinqiu tight gas block in the same area and a contract for the North Shilou CBM block in Shanxi province, both partnering PetroChina.

Shell is drilling single wells “from the pad, looking at what is the scale, what is the nature of the reservoir, what will be the cost to develop, what would be an appropriate development plan,” Henry said. “It’s looking like it’ll be into next year, probably towards the middle of next year before we really have a good feel, particularly on the two Sichuan developments, as to what is the appropriate commercial development program,” he added.

He said the outcome from the wells so far was mixed, with some good, bad and interesting results seen. “There is definitely great potential … It’s a question of how to make it economical. We’ve not stopped looking for further acreage either. There are several other opportunities in the country, including potentially wet or more liquids-oriented opportunities,” he said.

Henry’s comments come two days after the Anglo-Dutch major announced an amended PSC with PetroChina for a new development phase for the Changbei tight gas field in Shaanxi province. This new project could increase the current production plateau of 320,000 Mcf/d, Shell said.

Shell was also awarded two new offshore block contracts with China National Offshore Oil Corp. in exchange for giving the Chinese company part of its interest in two Gabonese blocks.

China is aggressively courting foreign investors in its shale gas sector as it encourages natural gas consumption. Demand is expected to nearly double to around 270 billion cubic meters by 2015 compared with now. Beijing has set an official shale gas production target of 6.5 Bcm/year by end 2015 but analysts say this is ambitious given the geological and logistical challenges involved.

–Song Yen Ling, [email protected]

–Edited by Haripriya Banerjee, [email protected]


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