Shell, Sinopec drilling for shale gas in central China

BEIJING Thu Nov 14, 2013 6:15am EST

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BEIJING Nov 13 (Reuters) - Royal Dutch Shell and China's Sinopec Corp are drilling exploration wells to test shale potential in central China, where little prospecting for the fuel has been done, company officials said on Thursday.

China, believed to hold the world's largest shale gas resource, has drawn international firms like Shell, Exxon Mobil , Chevron, Eni and Total to hunt for the unconventional gas, with Shell the first among them to land a production sharing contract.

Shell and Sinopec have completed drilling Liye-1, one of three exploration wells planned in a joint evaluation of shale resources at Xiang E Xi (XEX) block, at the junction of central Hunan, Hubei and Jiangxi provinces in east central China.

The joint study agreement (JSA) on the XEX block was entered into in June 2012 but has not been widely reported.

A Sinopec official said the Liye-1 well was completed last August but was subsequently sealed after results from hydraulic fracturing were not "very satisfactory". The official declined to be named as he's not authorized to speak to media.

Shell and Sinopec are now drilling the second well, Engye-1, and a third one is also planned, officials said. Sinopec is the operator of the project.

China, still in the early stages of developing the fuel, has drilled less than 150 exploration wells, mostly in and around the Sichuan basin in southwest China. Commercial output is tiny.

In Sichuan, Shell is conducting appraisal drilling of the Fushun-Yongchuan block in partnership with top Chinese oil and gas producer PetroChina . The two are looking to start commercial production after 2014.

Shell secured China's first shale gas product sharing contract in March last year to develop the Sichuan block, hoping that getting in early would allow it to be the biggest beneficiary from the sort of shale boom that has transformed the U.S. energy market.

Much of the $1 billion investment Shell spent this year on China's upstream business went to Sichuan, Shi Jiangtao, a Shell China spokesperson said in an email.

A former Shell executive said last year that Shell plans to spend at least that much a year exploring China's shale gas.

The major in August revealed a $2.2 billion charge against its weak U.S shale business and abandoned its 2017 goal to deliver 4 million barrels per day of total production.

CEO Peter Voser said in October it will take a longer time than expected for Shell to reap benefits from its global shale gas projects due to poor short-term results.

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