Chinese offshore oil and gas producer CNOOC plans to explore medium to long term investments in the unconventional resource sphere to drive the company's future, as it believes unconventional resources will play a critical role in China's energy mix.
"We believe stepping into unconventional resources has a strategic significance to our long-term growth," Yang Hua, CEO of CNOOC, said during a briefing to analysts in Hong Kong Wednesday after announcing its half-year earnings.
In July this year, CNOOC acquired oil sands developer OPTI Canada for approximately $2.1 billion. In 2005, it had purchased a 16.69% share in privately-held MEG Energy, which is the operator of the Christina Lake in-situ oil sands project, for C$150 million.
Separately, CNOOC has made two investments in shale gas projects with US independent energy producer Chesapeake.
In late January, CNOOC agreed to pay $570 million up front and $697 million in drilling carry to be paid out over the next three years for a one-third stake in its 800,000 Niobrara Shale acres in Colorado and Wyoming in the US.
The deal follows an agreement signed in October 2010 under which Chesapeake sold a one-third stake in its Eagle Ford shale project in southern Texas to CNOOC for just over $2 billion.
"The industry is fully aware of the importance of unconventional resources. Major oil companies have started to shift their investments from conventional to unconventional," Yang said.
According to a study by Wood Mackenzie, the proportion of capital expenditures that oil majors will spend on conventional assets is forecast to decline from 63% between 2001 and 2005 to 40% between 2011 and 2015, Yang said.
Within China, the State Council, or the cabinet, has said that it sees shale gas development as a priority and has repeatedly urged the government and the industry to speed up exploration.
According to a report by the US Energy Information Administration in April, China is estimated to hold recoverable shale gas reserves of 1,275 Tcf or 36.1 trillion cubic meters -- more than the US which is estimated to hold 862 Tcf.
In July, the Ministry of Land and Resources awarded one block each to China Petroleum & Chemical Corp., or Sinopec Corp., and Henan Provincial Coal Seam Gas Development and Utilization Co. in the country's first ever commercial tender for shale gas licenses.
Yang said that CNOOC was also awarded the Xiang Yangzi shale gas block in Anhui province in East China, and was also looking to explore the potential of other domestic unconventional resources like coalbed methane.
"While CNOOC have been active pursuing unconventional opportunities overseas, coalbed methane and shale gas opportunities in China will also provide growth options longer term," analysts from Bernstein Research said in a research note late Wednesday.
"With the parent company actively participating with CUCBM (China United Coalbed Methane) in onshore CBM, it may be possible that these assets are injected into the list over time," the analysts said.
