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CNOOC Opens 19 Blocks in South China Sea to Foreign Investors

Published: 5/26/2011
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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.

IHS World Markets Energy Perspective

 

Significance

China National Offshore Oil Corp. (CNOOC) is opening 19 South China Sea blocks to foreign investors. The offering includes a number of recycled shallow water blocks from last year, as well as new frontier deepwater acreage, which could see more interest following Husky Energy's commercial deepwater gas discoveries in Block 29/26.

Implications

The block offering reflects CNOOC's efforts to accelerate offshore exploration in the South China Sea to grow the domestic reserve base, and to offload exploration risks for some areas to concentrate capital expenditure on field development to boost output volumes.

Outlook

Data rooms for the blocks are likely to remain open until May 2012, although interested investors might be able to negotiate access to acreage by providing technical support to CNOOC, which is trying to develop its own deepwater surveying and drilling expertise.

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).

Blocks Eastern Area of South China Sea

Block

Basin

Size (Sq. Km)

Water Depth (Metres)

Seismic Data

Wells Previously Drilled

Block 27/12

Enping Sag; Pearl River Mouth Basin

4,257

80–100

2D seismic 15,104 km
3D seismic 18,000 sq. km

14

Block 28/03

Panyu Depression; Pearl River Mouth Basin

1,152

80–100

2D seismic 2,304 km
Full coverage 3D seismic

9

Block 16/14

Huizhou Sag; Pearl River Mouth Basin

492

80–100

Full coverage 3D seismic

0

Block 14/18

Xijiang Sag; Pearl River Mouth Basin

2,506.5

50–100

2D seismic 2,057 km

2

Block 15/10

Xijiang Sag; Pearl River Mouth Basin

3,772

80–100

2D seismic 8,560 km

2

Block 15/28

Xijiang Sag; Pearl River Mouth Basin

1,342

80–100

2D seismic 5,820 km

6

Block 27/03

Hainan Massive; Pearl River Mouth Basin

1,778.8

80–100

2D seismic 4,247 km

0

Block 27/06

Enping Sag; Pearl River Mouth Basin

1,991

80–100

2D seismic 5,982 km

4

PY 35-2

Baiyun Sag; Pearl River Mouth Basin

169

200–400

 

6

Block 30/27

Xingning Sag, Jinghai Sag; Pearl River Mouth Basin

5,129

1,000–3,500

2D seismic 2,156 km

0

Block 42/14

Heshan Depression; Pearl River Mouth Basin

7,554

500–3,000

2D seismic 4,267 km

0

Block 55/03

Changchang Depression; Pearl River Mouth Basin

7,483

500–3,000

2D seismic 2,285 km

0

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.

Blocks Western Area of the South China Sea

Block

Basin

Size (Sq. Km)

Water Depth (Metres)

Seismic Data

Wells Previously Drilled

Block 23/08

Western Wushi Sag; Beibuwan Basin

1,212

15–30

2D seismic 4,190 km
3D seismic 118 sq. km

2

Block 23/27

Maichan Sag; Beibuwan Basin

1,146

18–40

2D seismic 3,660 km

2

Block 65/24

Beijiao Uplift; Qiongdongnan Basin

3,080

1,000–2,200

2D seismic 1,487 km

0

Block 26/20

Yangjiang Sag; Yangchun Uplift; Pearl River Mouth Basin

2,660

70–100

2D seismic 3,335 km

2

Block 40/01

Qionghai Sag; Pearl River Mouth Basin

795

80–130

2D seismic 1,460 km
3D seismic 330 sq. km

1

Block 54/11

Shenhu Massif; Pearl River Mouth Basin

4,682

1,000–1,300

2D seismic 5,158 km

0

Block 41/25

Shunde Sag; Pearl River Mouth Basin

1,254

250–550

2D seismic 1,206 km

0

Outlook and Implications

Data rooms for the 19 offshore blocks are open from now until the date of publication of the next block offering, likely to be in May 2012. Prospective investors looking to acquire South China Sea acreage face risks. In many of the offered deepwater blocks, little exploration has previously been undertaken and no wells have been drilled. Investors have less data to use in trying to locate commercial hydrocarbons. In addition, the South China Sea is known for its adverse weather conditions, especially typhoons. Offshore production facilities need to be typhoon-proof in order to prevent losses and field shut-ins from adverse weather conditions—issues which have previously affected CNOOC's facilities in the sea. Investors in deepwater areas of the South China Sea also face risks to completing work programmes and receiving returns on investment from maritime territorial disputes between China and Vietnam. Blocks 53/30, Block 64/18, and Block 64/11—under exploration by Chevron and BG Group—are already located beyond the Vietnam maritime claim line and a small part of Block 64/18 even appears to overlap with the Paracel Islands disputed zone. It is uncertain whether acreage like Block 65/24 and Block 55/03 are located beyond the Vietnam territorial claim line, but if so contractors risk becoming embroiled in political tension between the two countries—which are both emerging as attractive upstream investment locations.
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