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China's CNOOC. Ltd. (NYSE ADR: CEO) will step up its long-term deepwater oil exploration plans with a close eye on safety measures in the wake of the BP PLC (NYSE ADR: BP) Gulf oil spill that has halted U.S. deepwater drilling.
The state-controlled oil company has exclusive rights to develop China's offshore resources and has plans to start exploring the South China Sea with nine new projects this year.
"CNOOC aims to transform its economic development mode via technological innovation. Its exploitation of offshore oil resources will shift from shallow waters to waters as deep as 3,000 meters," said company president Fu Chengyu.
The company has invested more than $2.19 billion (15 billion yuan) in the construction of deepwater drilling vessels, pipe-laying barges and geographical survey vessels.
CNOOC's first deepwater drilling rig is under construction in Shanghai and is due to be operational in the fourth quarter this year or first quarter 2011. The company launched its first deepwater ship to lay pipeline in May.
The known reserves in the South China Sea are mostly natural gas, which to be transported requires expensive pipelines on the ocean floor.
"The main engineering challenge is to lay out the pipeline on the sea floor," said Wu. "There are a lot of submarine valleys and the currents are pretty strong in the South China Sea."
Some deepwater blocks are under exploration by foreign companies, like U.K.-based BG Group, but CNOOC has the right to up to a 51% stake if a commercial discovery is made. CNOOC and Calgary-based Husky Energy found China's first deepwater gas field in 2006 and the companies found two more in 2009 and 2010.
CNOOC announced Friday that it completed the acquisition of 24.5% participation rights in a field block from Devon Energy Corp. (NYSE: DVN) for $515 million.
The company also will be upping its safety standards to try and prevent an accident like the Deepwater Horizon explosion that killed 11 people and resulted in the worst oil spill in U.S. history.
"I think the BP accident is actually a good alert to the Chinese players and also the international players in China," Changlin Wu, founder of a Beijing energy company, told Financial Times. "Everyone now realizes that safety is more important than anything else…I don't think BP's accident will be driving anyone away from China deep water."
CNOOC has confirmed the spill will not derail its oil production plans, although it will hold stricter inspections of rigs and equipment.
"We are taking all measures necessary to ensure safe production…(But the BP) incident won't have an impact on our production plans for this year or next year," said Zhang Fengjiu, the company's deputy chief engineer, at an energy conference in Beijing.
U.S. President Barack Obama has issued a six-month offshore oil-drilling moratorium in the wake of the spill that will slash over $1 billion from the amount oil companies spend on U.S. exploration and production. With global energy demand rising, oil sources must be found elsewhere.
"Offshore and especially deep-water oil and gas discoveries have great significance for replenishing China's and the world's oil resources," Zhou Shouwei, CNOOC vice-president, wrote on the company's Web site June 10.
Money Morning Chief Investment Strategist Keith Fitz-Gerald told investors last month to check out CNOOC, citing its successful oil interests in Indonesia, Nigeria and Australia and its proximity to emerging economies.
"[A]ll it takes is a stroll down the street in China to see that demand for oil and gasoline is going to increase far faster than most U.S.-based analysts would ever believe – or understand," Fitz-Gerald said. "With China now in the game, there's even a very real chance Washington will discover that it's been maneuvered to the sidelines, and perhaps even out of the game. But the good news is this: U.S. investors don't have to let the same thing happen to them. There's plenty of opportunity here – you just have to acknowledge it."
News and Related Story Links:
- Financial Times:
China to step up exploring in deep water
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Cnooc: BP Oil Spill Won't Hit Our Production Plans
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