CNOOC unveils deepwater gas discovery

CNOOC Limited, a subsidiary of China National Offshore Oil Corporation (CNOOC), the country's third largest oil company, announced a new deepwater gas discovery Tuesday.

The Liuhua (LH) 29-1 gas field was discovered by CNOOC Ltd's exploration partner Husky Oil China Limited, a wholly owned subsidiary of Husky Energy.

It was the third such deepwater discovery in the eastern South China Sea, following the discoveries of the Liwan (LW) 3-1 gas field in 2006 and the LH 34-2 field in December. All three discoveries were on the same block.

The gas well unveiled this time was located close to the previously discovered two deepwater gas fields. "LH 29-1 field will share the development and production facilities with LW 3-1 and LH 34-2," said an announcement posted on CNOOC's website.

The gas fields LW 3-1 and LH 34-2 will be developed in parallel. The LW 3-1 field is expected to see initial gas production in 2013, according to the announcement.

The deepwater gas discoveries will become indispensable gas resources in years to come given that common gas explorations are already saturated and their gas production is coming to the end of their lifespans, said Li Lingxuan of Zhuochuang Info. Co, an energy consulting firm.

Currently, deepwater is defined as waters from the seabed to the surface reaching a vertical distance of 300-500 meters.

The deepwater gas discoveries won't likely account for a large proportion of gas supply in the future, given their limited reserves, Li said.

Global verified gas reserves had recorded 183.66 trillion cubic meters as of January 1 this year, according to data collected by Zhuochuang Info. Co. That dwarfs the deepwater gas reserves.

The LH 29-1-1 well can expect daily gas production of 57 million cubic feet (1.61 million cubic meters), according to a drill stem test (DST) that provides data to estimate recoverable gas reserves, CNOOC said in the announcement. The gas production from LH 29-1- 1 largely equals that from the LH 34-2-1 well, which can produce 55 million cubic feet (1.56 million cubic meters) per day based on a DST, and the LW 3-1- 2, which can produce 53 cubic feet (1.50 million cubic meters) per day.

The LW 3-1 field is verified to have a gas reserve of between 100 billion and 150 billion cubic meters, with an annual production of 5-8 billion cubic meters. The gas reserve of LH 34-2 and LH 29-1 has not been published. Husky will appraise the LH 29-1 field later this year to further verify its reserves, said the CNOOC announcement.

Deepwater exploration is costly and worthwhile only if it proves more commercially valuable than exploration in shallow sea areas, Li said.

Coalbed gas that is technologically feasible and much less costly will become a vital resource in the future, Li believes.

The other two national oil and gas giants, China National Petroleum Corporation (CNPC) and China Petroleum and Chemical Corporation (Sinopec), both of which are reported to have been involved in deepwater exploration in the South China Sea, have not announced such discoveries.

CNOOC's moves in deepwater exploration won't likely have an influence on the other two oil giants in the foreseeable future, as CNOOC is less capable of oil refining and conducting mergers and acquisitions than CNPC and Sinopec, said Wang Gang, an oil and gas analyst with Great Wall Securities.

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