Life of Guangzhou - Bohai Set for No 2 Oil Spot

China National Offshore Oil Corp (0883) said its Bohai Bay site is set to emerge as the mainland's second biggest oil field in five years, succeeding the Shengli oil field in Shandong run by China Petroleum and Chemical Corp, or Sinopec (0386).

CNOOC's oil fields in Bohai Bay, run by the company or with joint-venture partners, are expected to exceed Shengli's annual output of 26 million tonnes in five years, said CNOOC general manager for Tianjin Chen Bi.

The Jidong Nanpu oil field in Bohai Bay run by PetroChina (0857) is said have combined proven and probable reserves of 1.18 billion tonnes of oil equivalent. PetroChina calls it the biggest discovery in a decade.

Bohai Bay accounts for half its total volume in the mainland, chief financial officer and executive vice president Yang Hua said.

This year, CNOOC is expected to produce 99 million barrels of oil from Bohai Bay, which Yang says offers "unlimited" potential.

"The oil we have found only accounts for a small portion of the total reserves. The recovery rate of Bohai Bay oil fields is only 25 percent, lower than the 40 to 50 percent in other areas," Yang said.

Beijing-based CNOOC, a purely upstream oil producer, has 56 fields in Bohai Bay, of which 29 are producing oil and 12 under development. Another 13 are in the early stage of development.

Of the oil fields, Jinzhou 25-1 in northeastern Liaodong Bay is deemed the most important discovery this year.

Chen said four wells had been drilled in Jinzhou 25-1 and are expected to produce 2,897 barrels of oil and 11.6 million cubic feet of natural gas a day.

"Natural gas production will continue to be important, on a medium- to long-term basis, as it is a cleaner and cheaper fuel," Yang said. He said the realized gas price is 3.21 yuan (HK$3.31) per thousand cubic feet, but the price to end-users is about 6 yuan per thousand cubic feet, making it a "high-margin" business.

Yang said CNOOC will maintain its production growth target at a compound annual rate of 7 to 12 percent from 2006 to 2010.

Oilfields run by CNOOC are all shallow-water oil and gas exploration. But it signed 10 deepwater collaboration contracts last year, including one with the Li Ka-shing-controlled Husky Energy based in Canada. (by Stephanie Tong)