China to encourage more international investment in oil exploration

Nov 11, 2004 01:00 AM

China will introduce a new geological measurement system next April designed to encourage more international oil companies to explore for oil and gas.
Yet foreign companies have shown little enthusiasm for the initiative, saying that what is really holding them back from greater exploration is doubts about the size of China's reserves and the quality of the areas which foreigners are allowed to explore. The Ministry of Land and Resources said it is studying a set of new measures that would include a clearer method of classifying oil and gas reserves.

Chinese oil companies now classify reserves according to "geological data" that contain no indication as to their commercial value. But a source in the ministry said the government wants to align the system more closely with international standards that use the 3-P system -- proven, probable and possible.
"Foreign companies have complained that there is a lack of clarity in the current system because both non-economic and economic data are considered in the classification of reserves," the source said.

Proven reserves are defined as estimated reserves with over 90 % certainty of being recovered. Probable reserves have a better than 50 % chance of being recovered, and possible reserves are less certain still, either because further appraisal or new technology are needed to develop them.
The new system in China will be similar but not identical to the 3-P classification that foreign oil companies use, according to the ministry. It may also encourage more seismic data to be made available to foreign companies.

Since not all Chinese oil companies are publicly traded, their parent companies are free to report their reserves without the governance of an international standard. However, foreign oil majors like Shell and BP do not feel that the classification of reserves is much of an issue to begin with.
"We don't think the classification of reserves has ever been a barrier to foreign companies' exploration interests in China," Shell spokesman in China Nick Wood said.

The bigger issue seems to be a lack of oil and gas reserves. Some industry watchers believe that the country's reserves are less than anticipated and that China has offered only less promising blocks to foreign investors, who must shoulder all of the exploration risks. Shell is involved in onshore explorations in Changbei, in the Ordos basin and the Tarim basin in Xinjiang.
However, the extremely complex geological structure of the Tarim basin creates great difficulties for exploration and development. The main problem is that the oil-bearing strata in the basin are often more than 5,000 metres below ground, much deeper than in China's eastern oilfields.

Although China National Petroleum Corp's recent finds there have instilled more confidence in foreign enterprises working in the basin, ExxonMobil said its exploration work there has yet to meet with success.
Shell and Unocal recently withdrew from a large offshore gas exploration project in the Xihu Trough in China's East China Sea, citing commercial reasons.

Source: The Standard
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