China Petroleum and Chemical Corporation
aka Sinopec) has inked an agreement with the U.S. energy company
) to conduct a joint unconventional oil and gas development
study. Although the financial details were not disclosed, this
collaboration between the two groups is expected to last for two
The deal calls for the fifth-largest oil company in the world,
Sinopec, to carry out the research program through its affiliate
− Sinopec Exploration Southern Company − to explore, develop and
produce shale gas in association with ConocoPhillips' China. The
companies will perform their activities in the shale gas rich
Qijiang block in the Sichuan basin.
ConocoPhillips will conduct the two-dimensional seismic surveys
and drill two wells in a portion of the block spanning 1,513
square miles. Its initiative to explore shale gas in China marks
the entry of the third international oil giant, with the others
Royal Dutch Shell Plc
). Other overseas oil majors like
) are also keen on similar agreements, but are yet to announce
In recent times, Texas-based energy major ConocoPhillips has
shown keenness to enter the Chinese market, with a special focus
on the shale sector. Its effort of boosting commercial shale gas
output in China will assist the country in meeting its targeted
shale gas output of 6.5 billion cubic meters annually by 2015 and
100 billion cubic meters by 2020. In 2011, China did not produce
any commercial gas.
China is estimated to hold recoverable shale gas of about 1,275
trillion cubic feet in just two basins, as per the US Energy
Information Administration. This actually overshadows the
combined reserves in the U.S. and Canada. China primarily intends
to lure U.S companies to share their experience in drilling for
shale as they lack the expertise in developing shale reserves.
This will help it reach its target for 2015. However, the target
looks too challenging to be fully accomplished in the current
scenario within 2015.
In view of gaining shale-gas know-how, Sinopec completed a $2.44
billion acquisition deal earlier this year for minority stakes in
Devon Energy Corporation
) U.S. shale oil and gas fields.
Both Sinopec and ConocoPhillips hold a Zacks #3 Rank
(short-term Hold rating). Longer term, we maintain our Neutral
recommendation for the companies.
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