PetroChina is applying for exploration and production licenses for the South China Sea. The move is seen as a challenge to CNOOC Ltd.'s dominant position in China's offshore oil and gas sector, although the licenses wouldn't change the country's licensing policy. There is no policy allowing only CNOOC to explore and produce oil and gas offshore China.
PetroChina is applying for licenses to explore a few blocks in the South China Sea. PetroChina's existing oil and gas exploration and production activity is largely confined to onshore basins in the northeast and northwest, except for a few shallow sea blocks in the Bohai Bay. Currently, PetroChina and US-based Apache are producing oil from Zhaodong, a shallow-water block in the Bohai Bay with a daily flow rate of 15,500 bbl.
The government recently adopted a policy of encouraging Chinese oil and gas companies to initiate hydrocarbon exploration in basins traditionally explored by rival companies. Additionally, the government could ask a company to surrender a license if the company fails to make a commercial discovery in a block within the licensed period. The block could be allocated later to another company using different technology or a different approach.
PetroChina is keen to explore offshore areas as its crude output in the northeast falls. The company has said crude output will fall by 2 million metric tons a year in the next seven years at its largest oil field, Daqing.
In addition to PetroChina's moves offshore, Sinopec is working with CNOOC, Royal Dutch/Shell Group, and Unocal to explore for natural gas in the East China Sea.
China's offshore oil output last year reached 20.9 million tons, up 4.2% on the year, and was 13% of China's total oil output. CNOOC and its foreign production-sharing contract partners produce nearly all of China's offshore oil production.