China's dominant offshore oil producer CNOOC is expected to buy a 12.5 per cent stake in Western Australia's Gorgon gas project, in a deal estimated to cost US$350 million and boost proven reserves by 13 per cent. As part of a gas purchase deal between parent China National Offshore Oil Corp with ChevronTexaco Australia, the operator and largest shareholder of the project, CNOOC said it would buy a 'substantial' stake in the project. While CNOOC and ChevronTexaco would not comment on the size of the stake and the transaction value, the West Australian newspaper reported that CNOOC would end up with a 12.5 per cent stake. A CNOOC spokesman said the deal was subject to further negotiations, the signing of final contracts, and the satisfactory progress of the project. The project is seeking more gas sales agreements in order to provide economic justification for the construction of the first five million-tonne-a-year LNG processing train, which it hopes to start early next year. It has recently signed a memorandum of understanding to supply LNG to a regasification terminal proposed by Shell in Baja California, west Mexico, which will have a capacity to process 7.5 million tonnes a year and is expected to come on stream in 2007. HSBC Securities analyst Gordon Kwan said: 'If China does not buy LNG from Gorgon, the deal to supply Mexico and southern California ... will not be able to close. 'By locking in an export deal with China, Gorgon's LNG production should be able to start in 2008.' Based on the transaction cost of CNOOC's acquisition of a 5.3 per cent stake in the North West Shelf gas project in West Australia for US$320 million, he estimated the Gorgon acquisition would cost $350 million for an attributable reserve of 260 million barrels of oil equivalent. CNOOC's stake in the North West Shelf project is equivalent to 210 million barrels of oil equivalent. Last year, CNOOC also bought a 12.5 per cent stake in the Tangguh gas project in Indonesia from a BP-led consortium for US$275 million with an attributable reserve of 324 million barrels of oil equivalent. The North West Shelf gas is destined to be imported by the Guangdong LNG gas terminal, which has a first-phase annual capacity of three million tonnes. In the second phase, the capacity is six million tonnes. The terminal is expected to come on stream before the end of 2006. Tangguh gas is slated to be shipped to a planned 2.5 million-tonne-a-year LNG terminal in Fujian province which was expected to be completed in 2007. CNOOC chief financial officer Mark Qiu Zilei refused to divulge the planned destination of the Gorgon gas, only saying it would be to a coastal province.