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Eric Ng

Oil giant's licence for South China Sea exploration poses challenge to CNOOC

Mainland oil giant PetroChina could provide the first serious challenge to rival CNOOC's dominant offshore position after obtaining a licence from Beijing to explore and produce oil and gas reserves in the southern part of the South China Sea.

However, the threat to CNOOC's position hinges on whether PetroChina is allowed to form joint ventures with foreign firms to obtain the necessary expertise, and whether it can circumvent difficulties arising from political tensions stemming from territorial disputes in the South China Sea, according to analysts.

A spokesman for PetroChina said the nation's largest oil and gas producer recently obtained the licence from the Ministry of Land and Resources.

The spokesman said the licence was for  a specific exploration block, but he declined to reveal its  location, saying he did not have the information.

The disputed area in the southern part of the South China Sea consists of more than 100 islands and reefs, with China, Taiwan, Vietnam, Malaysia, Brunei and the Philippines either making  entire or partial territorial claims.

The area is largely unexplored despite  its proximity to oil and gas-producing sedimentary basins, which suggests the potential for oil and gas deposits, according to the World Factbook.

Kim Eng Securities research head Eva Chu Wen-yee said the biggest factor limiting PetroChina was its lack of offshore experience. 'Unless Beijing allows PetroChina to work with foreign firms, it may not be able to make use of the licence effectively,' she said.

PetroChina's spokesman said it planned to explore the block alone using domestic and foreign expertise.

CNOOC has the exclusive right to form offshore joint ventures with foreign firms,   while PetroChina and Sinopec have the same rights  for onshore activities.

'There has been speculation that Beijing will do away with the preferential rights  [for] foreign co-operation sooner or later as the government made clear it wanted to relieve the country's oil shortage by encouraging firms to explore both on and offshore,' Ms Chu said.

CNOOC chief financial officer Mark Qiu Zilei said he  was unaware of any changes to  the regulation.



PetroChina heads offshore