PetroChina in talks with Shell, Hess to explore shale oil

BEIJING Thu Apr 5, 2012 9:44am EDT

An employee walks down the stairs of an oil storage tank after a regular check at a PetroChina refinery in Lanzhou, Gansu province January 7, 2011. REUTERS/Stringer

An employee walks down the stairs of an oil storage tank after a regular check at a PetroChina refinery in Lanzhou, Gansu province January 7, 2011.

Credit: Reuters/Stringer

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BEIJING (Reuters) - PetroChina Co Ltd (601857.SS) (0857.HK) is talking to Royal Dutch Shell (RDSa.L) and Hess Corp (HES.N) to explore shale oil in Santanghu Basin in China's northwestern Xinjiang region, parent China National Petroleum Corp (CNPC) said in a company-owned newspaper.

The talks mark the latest effort by Chinese oil firms to beef up their capability in shale oil and gas exploration by tapping foreign expertise, as well as the ongoing interest of overseas firms to enter the world's top energy consuming market.

"The main goal of the cooperation is to introduce advanced technology, production and management methods in unconventional oil and gas exploration and development, ... and to accumulate technology and experience," CNPC's company newspaper China Petroleum Daily reported.

The parties are negotiating business terms on block divisions and work targets during the exploration period, the report said, citing an official with Tuha Oilfield, a PetroChina unit which is responsible for developing the Santanghu Basin.

The foreign firms will bear the costs of exploration and share output with PetroChina in accordance with the proportion of investment during development, the report said.

Low oil reserve content and immature domestic technology have curbed China's ability to increase output in the basin, where PetroChina has struck 35 exploration wells, it said.

Oil has been found in 15 wells and industrial oil flows attested in four wells, according to the report.

CNPC has approved Tuha's application to jointly develop Santanghu with Shell and Hess, the report said.

The proposal still needs to be approved by the National Development and Reform Commission, in line with China's industry policy.

In March, Shell signed a production sharing contract with CNPC for a shale gas block in southwestern Sichuan, the first such deal in China.

Hess entered a study pact with Sinopec Corp (600028.SS) in July 2010 to look at shale gas and oil potential in Shengli oilfield in east China.

(Reporting by Jim Bai and Chen Aizhu; Editing by Richard Pullin)

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