CNOOC, Shell Pact to Diversify Country's Energy Supply

China National Offshore Oil Corp has signed contracts with Royal Dutch Shell Plc to explore for oil and gas in the South China Sea and off the coast of Gabon in West Africa, marking the latest step taken by a Chinese company to diversify its energy supply.

CNOOC, which produces more offshore oil than any other Chinese company, agreed on Wednesday to explore two offshore oil blocks - 62/02 and 62/17 - which lie in the Yinggehai basin off South China's Hainan island.

Shell has agreed to shoulder the project's exploration costs. CNOOC, for its part, will be able to claim an equity interest of up to 51 percent of any commercial oil and gas discovered in the blocks.

"The decision is highly significant for China's strategic energy reserves while (the country) remains highly dependent on oil imports," said Zhang Jing, an oil analyst at JYD Online Co Ltd, a Beijing-based bulk commodity consultant.

She said CNOOC's decision to work with Shell in West Africa will help China diversify its future oil imports and secure its energy supplies.

In June, the company issued a request seeking partners for the exploration of nine offshore blocks in the South China Sea.

The nine blocks occupy more than 160,000 square kilometers and are between 300 and 4,000 meters deep.

The two blocks that Shell will help explore are not part of those projects, said Liu Xiaobiao, head of CNOOC's media relations.

An industrial insider who declined to be named said it would be hard to accurately predict how much it will cost to explore the two blocks, saying neither Shell nor CNOOC has published data showing how large and deep the areas are.

"The exploration will take at least four to five years before there are any commercial discoveries," the insider said.

In Gabon, CNOOC will acquire a 25 percent stake in a pair of offshore exploration blocks - BC9 and BCD10.

It will pay Shell a quarter of what that company has spent on exploration in those two areas, as well as for future exploration.

The blocks are in water that is between 1,200 and 2,100 meters deep and are considered to be deepwater assets.

"China's technology that can be used in exploring for deepwater oil still lags behind what's found internationally," said Liao Na, information director at the energy consultancy ICIS C1 Energy.

"This cooperation with Shell in the South China Sea and West Africa can help Chinese companies learn from foreign companies."

She said the country needs foreign companies to take part in its South China Sea exploration.

"As the biggest foreign gas station brand in China, it is important for Shell to have more upstream support," Liao said.

"The recent cooperation between Shell and Chinese giant players - CNOOC and China National Petroleum Corp - has shown its ambitions in China."

On Wednesday, Shell said it had signed an agreement with China National Petroleum Corp to develop a new phase of the Changbei gas field in China.

That will be the latest phase in the development of the existing Changbei block, which occupies 1,700 square kilometers in the Ordos Basin, according to a statement by Shell.

The project, to move forward, must still win government approval.