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ConocoPhillips, PetroChina Sign Deals in Australia, China

02/20/2013 | 04:57pm US/Eastern
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--Conoco, PetroChina in a deal to identify unconventional resources in China's Sichuan Basin

--PetroChina to acquire stakes in two Western Australia exploration assets under the deal

--This is Conoco's second foray into China shale development

(Adds details about Conoco's shale deals in second paragraph, comments this week from Conoco CEO starting in the eighth paragraph, other details throughout.)

   By Alison Sider and Debbie Cai 
 

ConocoPhillips (>> ConocoPhillips) said Wednesday that struck a deal to work with PetroChina Co. (PTR, K3OD.SG, 601857.SH 0857.HK) to identify unconventional resources in China's Sichuan Basin, as the U.S. energy company plans to sell the state oil company stakes in two Western Australia exploration assets.

The move furthers Conoco's bid to tap Chinese shale formations, which international agencies say contain the largest deposits of unconventional natural gas in the world. This is the Houston-based company's second foray into Chinese shale development, after a deal it entered last year with China Petrochemical Corp., or Sinopec, to jointly study shale gas exploration in the Sichuan Basin.

Royal Dutch Shell PLC (RDSA, RDSB, RDSA.LN, RDSB.LN) and Chevron Corp. (>> Chevron Corporation) are also trying to unleash China's unconventional resources, a mission that the Chinese government says is a strategic priority.

The companies will jointly study the potential for unconventional resource development in the roughly 500,000-acre Neijiang-Dazu Shale Block in the Sichuan Basin in China. If technically and commercially viable, they will advance development under a production-sharing contract, which would be agreed upon during the study period.

As part of three deals that are pending government and partner approvals, PetroChina will acquire a 20% working interest in the Poseidon offshore discovery in the Browse Basin and 29% in the Goldwyer Shale in the onshore Canning Basin in Australia.

"ConocoPhillips recognizes the Sichuan Basin as having some of the most prospective marine shales in China and looks forward to working with one of the world's leading energy companies," said Don Wallette, ConocoPhillips' executive vice president, commercial, business development and corporate planning.

The Chinese government has targeted raising annual shale-gas output to 6.5 billion cubic meters by 2015 and as much as 100 billion cubic meters by 2020 from practically nothing now. But according to Wood Mackenzie, China is unlikely to reach one-tenth of its 2020 target. The energy consulting firm says 11 billion cubic meters is more achievable.

Speaking to the World Affairs Council of Houston on Tuesday, ConocoPhillips Chief Executive Ryan Lance said regulations and property ownership systems in other countries have a ways to go before international shale development will be able to catch up to the shale boom in the U.S. In the U.S., private ownership of mineral rights gives landowners an incentive to let drilling flourish. In most of the rest of the world, it's the state that owns mineral rights under the land.

"We've had a lot of Chinese visitors coming to the U.S. in the last few years wondering about unconventionals. They ask the question, 'What was the one policy the federal government put in place to allow this unconventional revolution to take place?'," Mr. Lance said.

"They don't understand it had nothing to do with federal policies. It had everything to do with private land ownership," Mr. Lance said.

But he added later that China is a key part of ConocoPhillips' portfolio.

"China remains important ... important in the energy business and important to the company," Mr. Lance said after the event.

Last week, ConocoPhillips was cleared to resume full operations at the Penglai 19-3 oilfield in China's northern Bohai Bay after being sanctioned by Beijing over oil spills in 2011. Its recent fourth-quarter earnings fell 58% as commodity prices fell and as the exploration-and-production company was hurt by lower average realized prices for oil and natural gas.

Meanwhile, PetroChina is expanding its footprint in Australia. In December, the company said it agreed to buy BHP Billiton Ltd.'s (BHP, BHP.AU) stake in the planned Browse gas-export project in Western Australia for $1.63 billion in cash, leading Nomura analysts to say the state-backed oil company needs to take a "more disciplined approach" in its overseas acquisition strategy.

Shares of ConocoPhillips closed Wednesday up 1.6% to $57.67. The stock is up 3.7% over the past three months. Meanwhile, PetroChina's American depositary receipts rose 0.3% to close at $136.41 in New York trading. They are up 3.6% in the past three months.

-Ben Lefebvre contributed to this article.

Write to Alison Sider at alison.sider@dowjones.com and Debbie Cai at debbie.cai@dowjones.com

Stocks mentioned in the article : ConocoPhillips, Chevron Corporation
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