China Petrochemical Corp (Sinopec Group), the nation's second-largest oil producer, has agreed to explore natural gas reserves in Saudi Arabia, making it one of the first foreign businesses to do so in more than three decades.
Russia's Lukoil and a consortium comprising Italy's ENI and Repsol YPF of Spain are other companies hoping to land exploration contracts in the world's largest oil production base.
Under the agreements, the companies will carry out separate exploratory projects in a total area of 120,000 square kilometres.
Sinopec will take over 40,000 square kilometres in the Rub Alkhali Basin. Lukoil was awarded a block of 30,000 square kilometres, while the ENI-Repsol consortium won an exploration area of nearly 52,000 square kilometres.
Saudi Aramco, the largest oil company in the kingdom, will be a partner in the three ventures holding 20 percent of the stakes in each of the three projects.
Sinopec Vice-Chairman Wang Jiming said the company will invest US$300 million in the first phase of exploration to drill wells and conduct seismic surveys. The first phase will last for 10 years.
The exploration deal marks a major step for Sinopec Group to expand its overseas business. Compared with domestic rival China National Petroleum Corp and China National Offshore Oil Corp, which have poured billions of US dollars into buying oil and gas equities in countries such as Indonesia, Algeria, Sudan and Australia, Sinopec is moving at a snail's pace in overseas expansion.
Last year, the company failed to buy a stake in the North Caspian Sea Project in Kazakhstan as existing international majors including ENI Agip, Royal Dutch/Shell and ExxonMobil exercised pre-emptive rights.
"Refinery-heavy Sinopec has always been keen to find oil and gas resources in foreign countries, as it imports more than 60 percent of the crude it refines," said an analyst with a Beijing-based investment bank who declined to be named.
"Saudi Arabia is one of the most important countries where the company is considering to add to its upstream reserves."
Saudi Arabia ranks as China's top supplier, exporting some 13.5 million tons of crude.
And the imports may continue to increase with China's growing appetite for energy to fuel the economic boom.
"The implementation of the natural gas project in Section B will further strengthen the communication and partnership between Sinopec and Saudi Aramco, and help boost economic development in both countries," Wang said in a statement.
"Sinopec is fully confident in the cooperation between the two parties, sound exploration results and returns on the investment in the future."
Commercial partnership between Saudi Aramco and Sinopec has already begun, as Saudi Aramco expects to take a 25 percent stake in a planned US$3 billion refinery and petrochemical venture in East China's Fujian Province, according to Saudi Oil Minister Ali al-Naimi.
(China Daily March 9, 2004)