CNOOC Sets Up Partnership for Two South China Sea Blocks

China’s state-backed China National Offshore Oil Corp. (CNOOC) said it formed a partnership with two foreign oil companies to jointly develop oil blocks in the South China Sea.

CNOOC signed production-sharing contracts with Australia-based Roc Oil Co. and British Virgin Islands-registered Smart Oil Investment to develop two oilfields in the Beibu Gulf basin, CNOOC’s Hong Kong-listed arm said. Roc Oil and Smart Oil are both backed by private Chinese investors.

Oil companies in China and abroad have revived production this year as oil prices recover following three years of decline. Crude prices climbed above $70 a barrel this year after falling as low as $30 in early 2016.

In April, CNOOC put up 38 offshore blocks for bidding to seek overseas partners for joint development, the most in recent years. Last year, CNOOC sought partners for 22 blocks.

In addition to the contracts with Roc Oil and Smart Oil, CNOOC signed a similar agreement in May with Canada’s Husky Energy.

Under the production-sharing accords, the overseas partners will serve as joint operators of the contract area and will pay exploration and development costs. As production starts, the foreign partners will be able to recoup their costs and share profits. The foreign partners will bear the loss if no oil is found.

The most recent contracts cover the Weizhou 10-3W oilfield, which has been proved with reserves, and the unproved Block 22/04. Roc Oil holds 35% and Smart Oil 25% in the Weizhou 10-3W oilfield. They will jointly own a 49% interest in Block 22/04 if reserves are found.

Smart Oil estimated that its share of exploration expenses in Block 22/04 will be $15.6 million. The contracted period of the production partnership is 17 years for Weizhou 10-3W and 15 years for Block 22/04 after production starts, according to Smart Oil.

Sydney-based Roc Oil was fully taken over by the Chinese investment conglomerate Fosun International in 2014 for A$474 million (about US$350 million at the time). Roc Oil previously partnered with CNOOC in development of several oil blocks. According to Fosun International, Roc Oil posted US$130 million of revenue in 2017 with net profit of US$38.9 million.

Smart Oil is an offshore subsidiary of Beijing-based Sino Geophysical Co., a private oilfield service provider.

Contact reporter Han Wei (weihan@caixin.com)