Cnooc Group, Taiwan's CPC Plan Joint Deep Water Exploration Pact -Sources

   By Jenny W. Hsu and Yvonne Lee 
 

TAIPEI--State-controlled energy firms in China and Taiwan are preparing to jointly explore for natural gas in deep waters in the Taiwan Strait, having failed to make significant shallow-water finds despite nearly a decade of prospecting together.

Chinese oil and gas giant China National Offshore Oil Corp., or Cnooc Group, and Taiwan state-run refiner CPC Corp. are now drawing up a pact to jointly explor the northern end of the 180-kilometer-wide Taiwan Strait, and may invite a foreign partner to join them, an CPC official told the Wall Street Journal. He declined to be named.

Energy-deficient China's search for offshore oil and gas reserves has pit it against several of its neighbors, resulting in naval jousting with Japan, Vietnam and the Philippines near disputed islands and atolls.

CPC has been working with Chinese oil companies in several overseas exploration ventures for over a decade. But since China-friendly Ma Ying-jeou became Taiwan's President in 2008 and the subsequent signing of a landmark trade pact with China, both Beijing and Taipei have been expanding economic cooperation.

Large gas reserves have already been found in undisputed Chinese waters south of Hong Kong by Husky Energy Inc. (HSE.T), working with Cnooc's listed unit, Cnooc Ltd. (CEO). Gas from their Liwan field is due to be piped onshore from late 2013.

No other major discoveries have been made in the South China Sea since then, and in the meantime China's energy deficit has resulted in soaring natural gas imports--in the first nine months of 2012 they rose 35.5% to 30.5 billion cubic meters.

Taiwan imports more than 95% of its energy needs, shipping in 14-15 billion cubic meters of liquefied natural gas annually, mostly from Qatar, Indonesia and Malaysia.

The new Cnooc-CPC project follows the failure a 2002 Cnooc-CPC joint venture to find gas under shallow waters in the southern end of the Taiwan Strait and the Chaozhou Shantou Basin off the coast of China's Guangdong province, officials at the two energy firms said. That deal is due to be terminated later this year.

Under the new deal, the CPC official said, Cnooc and CPC will explore off the coast of Keelung and Hsinchu counties of Taiwan. A formal agreement is expected by late 2013.

Cnooc Ltd. is transforming itself from a shallow-water domestic oil producer to a global player with deep-water, unconventional and conventional hydrocarbon assets in countries ranging from Uganda to Argentina and the U.S.

In July, Cnooc Ltd. agreed to acquire Canadian oil company Nexen Inc. (NXY) for US$15.1 billion, which if approve by the government will allow it to absorb deep-water drilling technology Nexen is using in six Gulf of Mexico prospects.

Cnooc Ltd. is now working domestically with foreign partners in at least 11 deep-water projects in an effort to grow its oil and gas reserves at home.

All foreign companies exploring in deep water in South China Sea have signed production-sharing contracts with Cnooc, which retains the right to take a majority interest in any commercial oil or gas discovery.

However, it isn't clear what arrangement will apply to the new Cnooc-CPC joint venture.

Among international energy majors active in the South China Sea are Chevron Corp. (CVX), BP PLC (BP) and Italy's ENI SpA (ENI.MI).

--Aries Poon contributed to the article.

Write to Jenny W. Hsu at [e-mail] and Yvonne Lee at [e-mail]