ConocoPhillips halts shale operations in China

PetroChina drilling rig
Source: PetroChina website

The world’s largest independent pure-play exploration and production company, ConocoPhillips, has announced its withdrawal from shale operation in China.

According to Xinhua Finance, the company has ended both the joint shale gas exploratory work with PetroChina in Dazu block within Neijiang County of southwest Sichuan province, as well as exploration with Sinopec in Zuanjiang County of southwest China’s Chongqing municipality.

“In this low oil price environment, it’s not surprising that foreign oil majors are cutting spending on non-core businesses,” Li Li, a research and strategy director at ICIS China, a Shanghai-based energy consultant, told Bloomberg.

“Given the complicated shale formations in China, only the state-owned Chinese energy firms are more likely to pursue their investment in the sector as they see it more as a national strategy.”

At 1,115 trillion cubic feet (Tcf) of natural gas, China has the world largest shale gas reserves, but tapping this enormous potential has not been easy. Having said that, the news coming from the country in the recent weeks would indicate that Chinese companies are increasingly successful in shale exploration – even without the help of foreign multinationals.

Speaking at the end of June, Li Jinfa, an official with the Chinese Ministry of Land and Resources (MLR), said that China has basically mastered the shale gas geophysical, drilling and fracturing technologies. It has also managed to reduce horizontal drilling cycle from 150 days to 70 days, as well as significantly lower the costs of a single well from 100 million yuan to 50 million yuan.

From 2009 to 2014 China has invested around $3.7 billion in the research and development of its own shale gas fields, with an active investment campaign continuing during the current year. It’s a strategy that seems to bear fruit. According to a recent report by the U.S. Energy Information Agency, China and Argentina are the only countries outside of North America that are producing shale gas and tight oil at commercial volumes.

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