China National Offshore Oil - the country's dominant offshore oil and gas producer - has struck its first deep-water exploration deal with a foreign oil firm. CNOOC - the listed flagship of China National - said yesterday its parent had inked a deal with Husky Oil China, a unit of Canada-based Husky Energy to explore in three phases the deep-water block 40/30 100km southeast of Hainan Island. It is the first exploration deal clinched since China National put its 12 deep-water blocks of exploration area on public tender to invite investment interest. The deal will see Husky spend at least US$10 million on exploration in the first phase. CNOOC declined to provide spending figures for phases two and three. Under the contract, Husky will cover all of the exploration costs, while CNOOC will have a 51 per cent interest in any future development and production of oil and gas should proven reserves be found. CNOOC's parent has the exclusive right to enter into co-operation arrangements with foreign companies for offshore petroleum exploration. However, the actual exploration, development and production operations will be conducted by CNOOC. CNOOC has no experience in deep-water operations which are more costly than shallow-water activities. CNOOC may have to enlist oil exploration and development services from foreign providers as its main supplier, sister company China Oilfield Services (COSL) lacks the equipment and technology. A COSL spokesman said the firm would strive to bid for the services contract from the Husky deal by procuring the necessary equipment and technology. COSL has raised HK$2 billion to fund its capital expenditure plan to upgrade its equipment.