CNOOC Opens 19 Blocks in South China Sea to Foreign Investors

China National Offshore Oil Corp. (CNOOC) has opened 19 blocks to foreign investors covering an area of 52,006 sq. km in the South China Sea. The opening of acreage in the South China Sea tends to occur in May of every year, but often the acreage offering features a number of recycled blocks. This year is no exception with five shallow-water blocks in the eastern areas of the South China Sea—Block 14/18, Block 15/10, Block 15/28, Block 27/06, and Block 27/03—recycled from last year (see China: 10 May 2010: CNOOC Offers 13 Blocks for Tender in the South China Sea). CNOOC has been keen to offload these blocks to foreign investors—who shoulder all risks during the exploration stage. This allows CNOOC to concentrate capital expenditure on development of proven discoveries, which can boost its overall production rate, while if commercial discoveries are made at the blocks CNOOC has the opportunity to farm-in and take a stake.

Many of the offered blocks are located in the Pearl River Mouth basin, which has been under exploration since the 1970s. The Zhu-1 Depression area of the basin contains many of its major oilfields, such as Huizhou 21-1, Huizhou 26-1, and Huizhou 33-2, and this area of the basin has recently succeeded in attracting interest from Italian oil company Eni—which is currently waiting to complete the Huizhou 9-2-2 wildcat on the 03/27 block. The offered Block 15/28 is located near to already discovered fields like Huizhou 25-3 and Xijiang 30-2 in this area, and is also potentially attractive as discoveries could be tied into existing pipeline infrastructure. The Enping Sag area of the basin, where Block 27/12 and Block 27/06 are located, might potentially be of more interest to foreign investors this time around following CNOOC's oil discovery at the Enping 24-2 1 well, which was completed in June 2010 (see China: 18 June 2010: CNOOC Makes Significant Shallow-Water Oil Discovery in Pearl River Mouth Basin).

However, generally, shallow-water blocks in the Pearl River Mouth basin have not attracted great interest from large IOCs in previous licensing rounds, being more interested in exploring the basin's deepwater potential. There, interest has been aroused by Canadian independent Husky Energy's discovery of the Liwan 3-1 field in 2006—the first deepwater gas discovery offshore China. The discovery proved the Miocene Turbidite play in the basin, and IOCs like Chevron and BP have since capitalised on Devon Energy's decision to divest its deepwater acreage in the basin to secure a position there. Deepwater blocks on offer in eastern areas of the Pearl River Mouth basin include Block 30/97, Block 42/14, and Block 55/03, which, on the basis of their previous interest in the basin, might attract major oil companies like Statoil, Eni, BP, BG Group, or Chevron. CNOOC may be looking to use the block offering to enhance collaboration with foreign companies to develop its deepwater exploration expertise. The NOC has been investing heavily in expanding its deepwater capabilities of late, and has recently taken deliveries of a new semi-submersible drilling rig, a deepwater pipelay vessel, and a 12-streamer deepwater seismic survey vessel (see China: 24 May 2011: CNOOC Celebrates Delivery of First Deepwater Semi-Submersible Drilling Rig). CNOOC now has a limited capability to deploy its own vessels for deepwater exploration activities, although the company is still looking to collaborate with foreign companies to develop its deepwater surveying and drilling skills, and has not generally taken the position of operator at deepwater blocks. Indeed, CNOOC only took the position of operator for the shallow-water portion of the development project at the Liwan 3-1 project in Block 29/26, leaving the deepwater portion of the project to Husky Energy reflecting its lack of expertise in this area.

Outlook and Implications