China Petrochemical targets China shale gas reserves
China Petrochemical Corp hopes joint ventures with overseas firms will provide it with the technology to tap country's shale gas reserves
Oil and gas giant China Petrochemical Corp's formation of two joint ventures with overseas drilling technology firms in the past month could pave the way for technology transfers that would help unlock the mainland's vast untapped shale gas resources.
Analysts said China Petrochemical's drilling services ventures with Switzerland's Weatherford International and FTS International of the United States would also boost the image of Sinopec Oilfield Service, a unit of subsidiary China Petroleum & Chemical Corp (Sinopec), which it hopes to spin off for a listing.
FTSI said last week it had agreed to form a 15-year joint venture with China Petrochemical that would see the mainland benefit from FTSI's expertise in fracturing underground rock formations to release hard-to-extract oil and gas.
FTSI chief executive Greg Lanham said the joint venture would initially invest US$55 million to US$70 million on facilities to serve Sinopec's shale gas projects in Sichuan province. Other gas drillers on the mainland could also become customers of the venture later.
The venture will be 55 per cent owned by China Petrochemical and 45 per cent by FTSI.
Equipment manufacturing would initially be conducted entirely in the US, but some work might migrate to China over a three to four-year horizon to reap potential savings, Lanham said.
The venture planned to provide fracturing services for two to six wells a month for Sinopec at first, and its initial annual work volume was projected at US$50 million, he said.
News of the FTSI venture came three weeks after Weatherford said it had agreed to form a joint venture with Sinopec Oilfield to provide products and services to tap the mainland's shale gas resources, estimated by the US Energy Information Administration to be the world's largest.
While Sinopec has seen better-than-expected exploration success in Sichuan and leads the industry in shale gas development, the mainland industry needs the expertise of foreign firms that have operated with great success in the US in the past decade to meet Beijing's target of 60 billion to 100 billion cubic metres of shale gas output by 2020.
Next year's target of 6.5 bcm is widely expected to be surpassed since Sinopec recently raised its output target to 5 bcm, from 2 bcm two years ago, and state-backed PetroChina lifted its goal to 2.6 bcm from 1.5 bcm.
Neil Beveridge, a senior analyst at US brokerage Sanford Bernstein, said it was unusual for China Petrochemical, which is both a customer and a rival of its foreign partners, to enter into joint ventures with them. Sinopec is the customer, while Sinopec Oilfield is the rival.
"It is like if you are building a house, you normally just bring in the people to do the job, you don't need to form a joint venture," Beveridge said. "This may be a way for technology transfer as the parties foster closer relations."
Weatherford and FTSI's larger US-based rivals, Schlumberger and Halliburton, have both partnered with mainland peers, with the former investing in and forming a joint venture with Anton Oilfield Services Group and the latter forming a joint venture with SPT Energy Group. Both Anton and SPT are privately owned and Hong Kong-listed.
PetroChina's parent China National Petroleum Corp, which supplies drilling services to PetroChina, has not announced any oilfield services joint ventures with overseas partners but has instead tapped foreign expertise through suppliers such as Anton and SPT.
Both Beveridge and Daiwa Securities analyst Adrian Loh said the ventures with Weatherford and FTSI would augment Sinopec Oilfield's profile and help it get a higher stock market valuation in its potential listing.