By Jenny W. Hsu and Yvonne Lee
TAIPEI--State-controlled energy firms in China and Taiwan are
preparing to jointly explore for natural gas in deep waters in the
Taiwan Strait, having failed to make significant shallow-water
finds despite nearly a decade of prospecting together.
Chinese oil and gas giant China National Offshore Oil Corp., or
Cnooc Group, and Taiwan state-run refiner CPC Corp. are now drawing
up a pact to jointly explor the northern end of the
180-kilometer-wide Taiwan Strait, and may invite a foreign partner
to join them, an CPC official told the Wall Street Journal. He
declined to be named.
Energy-deficient China's search for offshore oil and gas
reserves has pit it against several of its neighbors, resulting in
naval jousting with Japan, Vietnam and the Philippines near
disputed islands and atolls.
CPC has been working with Chinese oil companies in several
overseas exploration ventures for over a decade. But since
China-friendly Ma Ying-jeou became Taiwan's President in 2008 and
the subsequent signing of a landmark trade pact with China, both
Beijing and Taipei have been expanding economic cooperation.
Large gas reserves have already been found in undisputed Chinese
waters south of Hong Kong by Husky Energy Inc. (HSE.T), working
with Cnooc's listed unit, Cnooc Ltd. (CEO). Gas from their Liwan
field is due to be piped onshore from late 2013.
No other major discoveries have been made in the South China Sea
since then, and in the meantime China's energy deficit has resulted
in soaring natural gas imports--in the first nine months of 2012
they rose 35.5% to 30.5 billion cubic meters.
Taiwan imports more than 95% of its energy needs, shipping in
14-15 billion cubic meters of liquefied natural gas annually,
mostly from Qatar, Indonesia and Malaysia.
The new Cnooc-CPC project follows the failure a 2002 Cnooc-CPC
joint venture to find gas under shallow waters in the southern end
of the Taiwan Strait and the Chaozhou Shantou Basin off the coast
of China's Guangdong province, officials at the two energy firms
said. That deal is due to be terminated later this year.
Under the new deal, the CPC official said, Cnooc and CPC will
explore off the coast of Keelung and Hsinchu counties of Taiwan. A
formal agreement is expected by late 2013.
Cnooc Ltd. is transforming itself from a shallow-water domestic
oil producer to a global player with deep-water, unconventional and
conventional hydrocarbon assets in countries ranging from Uganda to
Argentina and the U.S.
In July, Cnooc Ltd. agreed to acquire Canadian oil company Nexen
Inc. (NXY) for US$15.1 billion, which if approve by the government
will allow it to absorb deep-water drilling technology Nexen is
using in six Gulf of Mexico prospects.
Cnooc Ltd. is now working domestically with foreign partners in
at least 11 deep-water projects in an effort to grow its oil and
gas reserves at home.
All foreign companies exploring in deep water in South China Sea
have signed production-sharing contracts with Cnooc, which retains
the right to take a majority interest in any commercial oil or gas
discovery.
However, it isn't clear what arrangement will apply to the new
Cnooc-CPC joint venture.
Among international energy majors active in the South China Sea
are Chevron Corp. (CVX), BP PLC (BP) and Italy's ENI SpA
(ENI.MI).
--Aries Poon contributed to the article.
Write to Jenny W. Hsu at jenny.hsu@dowjones.com and Yvonne Lee
at yvonne.lee@wsj.com