SOUTHEAST ASIA EXCLUSIVE INTERVIEW: China's offshore chiefs say shelf will provide half China's production by 2010

Dev George Managing Editor (Left)Weizhou 11-4 Field, Beibu Bay. (Right)Wang Yan, President CNOOC. In exclusive interviews conducted recently in Shanghai and Beijing, the principal administrators of China's burgeoning offshore petroleum industry described the current state of Chinese offshore exploration, development, and production and indicated where they believe they will be in the next decade.


Dev George
Managing Editor

(Left)Weizhou 11-4 Field, Beibu Bay. (Right)Wang Yan, President CNOOC.

In exclusive interviews conducted recently in Shanghai and Beijing, the principal administrators of China's burgeoning offshore petroleum industry described the current state of Chinese offshore exploration, development, and production and indicated where they believe they will be in the next decade.

China National Offshore Oil Corporation's President Wang Yan, who holds ministerial status in the government, and East China Sea Offshore Oil Corporation President Ma Qifu, maintain that this is but the primary stage of offshore exploration in China, that the future holds tremendous promise.

Offshore represents only 8-10% of China's current oil production, but Presidents Wang and Ma are optimistic that in 15 years, that figure will be 50%. The country has been stepping up field development to build production and eliminate oil imports, and, as a consequence, major giants (Xijiang, Liuhua, and Yacheng) has come onstream this year while other fields await delineation work.

"We have achieved much, I believe, in the past ten years," said Wang. "During that time, we have joined in over 100 exploration contracts, and found 1.2 billion tons of oil and 100 billion cubic meters gas in place. We now have 10 offshore oil fields in production, and another six are in a state of construction. Last year, our oil production was 7 million tons a year. This year, we are reaching 8 million tons a year. We are expecting new oil fields to go into production, so that by 1996, we will have production of 10 million tons a year."

China began its major focus on offshore development in 1993, with its program for the South China Sea. Today it is the country's major offshore venue, and currently accounts for most of the 92,600 b/d of oil produced from the Chinese shelf.

Five fields have been in production there for some time: Lufeng and Lufeng 13 Fields, Weizhou, Xijiang 24, and Hiuzhou, but three of China's long-awaited fields are now onstream there, too: Phillips/Pecten's Xijiang 30 and Amoco's giant Liuhua 11 oil fields; and south of Hainan Island, Arco's giant Yacheng 13 gasfield. (The Xijiang 30 Field is expected to produce 4 million tons oil annually, or 81,000 b/d, the giant Amoco-operated Liuhua 11 Field is expected to produce 65,000 b/d, and the other giant, Arco's huge 3.5 tcf Yacheng 13 gasfield, is set to produce 330 million cf/d of gas destined to go to Hong Kong.

Beyond these near term producers, Wenchang Field is being developed by Esso in Block 40/01 of the Hainan Straits between Hainan Island and the Luichow peninsula. Other concessions in the South China Sea are BHP Petroleum's Block 03/36 in the Pearl River Mouth Basin, Kerr-McGee's Block 04/06, and Arco's Blocks 52/12 and 63/28 in the Qiong Dong Nan area. Farther afield is the Wan'an Bei 21 concession granted to Crestone Energy, which straddles Vietnamese-contested waters.

The Bohai Gulf is China's second offshore venue, with estimated reserves of 700 million bbl, but unlike the South China Sea, only China now produces there. Several foreign companies, however, hold millions of acres in concessions, including BP, the Exploration Company of Louisiana (XCL), Murphy Oil/Kerr-McGee, Phillips, and Texaco.

The JV of Bohai Oil Corp. and Japan-China Oil Development Corp. discovered and brought into production the areas first oilfields, Bozhong 28-1, and Bozhong 34-2/4E. Thereafter, Bohai Oil itself discovered and put into production the giant, 1.8 billion bbl Suizhong 36-1 Field in 1993, which is currently producing 11,700 b/d oil from 11 wells, and Jinzhou 2, with its present output of 1.4 cm/d gas and 4,000 b/d condensate. Two other fields are now being developed by Bohai Oil, Jinzhou 9-3 and Chengbei.

China's East China Sea is still an almost untouched aquatory. Explorations have been going on over the past 20 years, and some 20 appraisal wells have been drilled in the area, but practically no development has occurred yet.

"CNOOC has been operating for ten years," said Wang, "but we have a huge acreage. At this time, we are only in the primary stage of exploration. In fact, we expect much more, great production in the future. In 20 years, offshore will account for at least half China's oil and perhaps even more of our gas production.

"My personal view is that the development of the whole offshore area of China is going very fast. Generally speaking, China's offshore is now open, and we are welcoming all oil companies here to sit down and discuss possibilities, because we have no intention to conduct any rounds in the future. We have no specific program any more. Whenever anyone comes, we talk. If they are interested in a specific areas, we just negotiate with them for those areas."

Natural gas

President Wang noted that much of the economic development of the southern provinces of China will depend on the development of South China Sea reserves, particularly the apparently abundant gas reserves.

"The discovery and development of China's natural gas resources are very important to us," he said. "Through our exploration efforts, we are now developing natural gas resources. At this time, I think China's gas resources are more than adequate. We already have gas in place of 580 billion cu meters. In the meantime, we're finding new discoveries all the time. We expect next year's gas in place will increase again.

"We feel confident about our gas reserves. That is how we can justify supplying gas to Hong Kong from Yaching 13 in the South China Sea. It's a very good market, and it allows us to earn foreign currency. But later, all along the coastal area of the South China Sea, there will be a demand for natural gas, primarily as a fuel for generation of power. At this time, however, those areas along our south coast still cannot afford such kinds of fuels. It will not be long, however, before they are ready for it; China's economy is growing very fast, that's why we're developing the potential of coastal areas to meet their needs. The market for the future, especially in power generation, is excellent."

"I fully believe that within a relatively short time, China will have the consumers necessary to support a large natural gas industry, not only in the interior of the country, but also in the coastal cities and their outlying areas. There is great potential for development in these provinces. Certainly, more and more foreign companies are showing their interest in these areas, and, at the same time, oil companies are talking with us to explore possibilities of finding natural gas to serve these areas."

Wang is optimistic about oil discoveries as well, particularly in the Bohai Gulf and East China Sea.


"The Bohai area has some giant oil fields, he said. "We have, for example, discovered the giant Suizhong 36-1 oilfield, with 200 million tons - 1.4 billion bbl oil in place. And there are numerous other small oilfields with about 10 million tons each. Another giant, the Jinzhou oilfield, upon complete development, will have end production of a million tons a year. Production is going so well now that we are planning the second phase. Based on these, seismic analysis is needed and geological studies are needed to develop those fields economically.

Even though we have done some exploration of our own, the geological complexities in Bohai require considerable expertise and technology to deal with them, that is why we invite outside oil companies to participate. We plan to develop the Bohai fields by using the expertise and technology of foreign oil companies, the companies that have started exploration there."


(Left) Dev George with Ma Qifu, East China Sea National Offshore Oil Corp., Shanghai.

(Right) Suizhong 36-1, Bohai.

East China Sea

Ma Qifu, president of CNOOC Donghai (East China Sea National Offshore Oil Corp.), Shanghai, said, "The total hydrocarbon reserves of the entire East China Sea are at least 5 billion metric tons, but we have done little to locate and exploit those reserves until now.

Exploration of East China Sea waters has been in two phases. During the first 20 years, it was mainly self-funded, whereas the second phase is both cooperative and self-financed activities. In the first, activity was limited by funds and technology, so exploration was not very efficient, but it did serve as preparation for the current stage.

"Some 160,000 km of seismic was acquired in the first stage, and we made resources assessments many times. As a consequence, we made predictions about the potential and the prospects of the East China Sea basins, and due to these efforts, the data is opening up offered blocks to foreigners, who have decided to drill very soon.

The second phase has just begun. It involves considerable funds and technology from abroad, so we are in a new stage of cooperation and activity, but it is speeded up by our experience accumulated over the last ten years.

"The Pinghu acreage, some 242 sq km, is the only area of the East China Sea reserved for Chinese operation, which is being done now by a three-party joint venture between CNOOC Donghai, Shanghai Petroleum, and the Chinese Bureau of Geology (BOG). There have been 20 wells drilled there, but there is a pressure problem. Several fields in the area are under evaluation, but the first to be developed will be Pinghu Field itself. It is a very large oil, gas, and condensate field discovered by the BOG and Donghai in 1989-90. One test well, drilled by the unit of the Bureau of Geology, tested very well, 4,224 b/d oil and 9.4 million cf/d gas.

"So far, development of the Pinghu Field and associated fields has not been approved by the government. Upon approval of our plan, it should be onstream in three years. We are now conducting 2D and 3D seismic surveys and will probably be drilling a few more test wells. The BOG has a right to offer a PSC for the area, but we believe we will be developing it ourselves once approval is given.

"Our program calls for one comprehensive platform and two pipelines, one for gas, one for oil, with both supplied to Shanghai. We are certain discoveries will be made on several of the associated blocks, thus the pipeline system is critical.

"In 1988, the Chinese government decided to open up the other two prospective areas north and south of the Pinghu prospect, and delineated them for licensing. No new wells had been drilled in these two areas. Our own activity wasn't focused there, so they were opened up.

"Thus, in the fourth licensing round, 20 blocks were offered and 18 were taken, including 11 PSC contracts, six geophysical agreements, and one study. Acquisition of seismic has been completed, some 23,000 km of data. Now, we have seen 12 wells drilled: five by Texaco, two by JTOC, two Chevron, one Shell, one Exxon, and one by Maxus. This year has been a very busy year in the East China Sea.

"A great number of foreign oil companies are very interested in this area. For that reason, a third offering is under consideration, but it must be approved by the government. A decision will be made after some study by CNOOC. Perhaps next year.

"Next year is the year of the East China Sea. I anticipate by the end of the century, there will be a major production coming from the East China Sea."

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