China’s Two Oil Giants to Collaborate on Oil and Gas Exploration
China’s two biggest state-owned oil and gas companies are collaborating on large-scale upstream exploration, aiming to expand their reserves and production capacity in the country’s central and western regions.
China National Petroleum Corp. (CNPC), the country’s biggest oil and gas company, and China Petroleum and Chemical Corp. (Sinopec), the world’s largest refiner by volume, signed a joint research framework agreement Monday on multiple oil and gas blocks.
The move was in response to President Xi Jinping’s call for state-owned oil enterprises to increase reserves and production to bolster national energy security. In July 2018, Xi issued key instructions on domestic oil and gas exploration.
Leaders of CNPC, Sinopec and China National Offshore Oil Corp. have all pledged to step up exploration and development efforts. Monday’s announcement followed another strategic cooperation agreement signed last month between CNPC and Sinopec in two of their oil fields.
The new collaboration covers three oil-rich basins in China’s Xinjiang region and Sichuan province with a total area of 308,500 square kilometers.
CNPC Chairman Wang Yilin said the company will invest 5 billion yuan ($730 million) every year in exploration from 2019 to 2025, five times the amount in 2018.
Sinopec’s investment in exploration, development and capacity building will increase by 30%-50% each year for the next six to seven years, President Ma Yongsheng said in March.
CNPC expects its proven oil reserves to reach 4.06 billion tons by 2025 and natural gas reserves to reach 3.73 trillion cubic meters. Sinopec has proposed to build a gas field in Sichuan with annual output of 10 billion cubic meters by 2020 and 20 billion cubic meters by 2030.
CNPC and Sinopec have long competed more than they cooperated in upstream exploration and downstream sales, said Dong Xiucheng, a professor at the University of International Business and Economics. Dong has also been an independent director of a subsidiary of Sinopec.
The two oil giants used to keep their exploration data secret from each other, but the research collaboration, a first for them on a large scale and on multi-regional oil and gas blocks, will provide a framework for top-level cooperation and lay the foundation for future oil and gas joint investment, Dong said. The two companies can also improve exploration efficiency by sharing geological data and collaborating on personnel and equipment, he said.
Geological data interpretation is Sinopec’s strong suit, while CNPC has advantages in geological interpretation equipment and oil and gas development technology, said Liu Yijun, a professor at China University of Petroleum.
The joint research is still in the very early stage of oil and gas exploration and development, mainly involving scientific and technological cooperation, Liu said. The companies’ future cooperation in production capacity building and oil and gas exploitation will depend on specific projects, he said.
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