* U.S.-listed Weatherford, Sinopec could announce deal by
* China hopes overseas expertise will help unlock massive
* U.S. shale boom has changed energy landscape
By Chen Aizhu
BEIJING, Aug 2 China's Sinopec Corp
and U.S.-listed Weatherford International are in
advanced talks about forming a joint oilfield service company,
as the world's top energy consumer seeks overseas expertise to
help unlock its vast shale resources, said people with direct
knowledge of the matter.
The proposed joint venture would likely be the largest of
its kind in China, aiming to marry Weatherford's technological
know-how with the Chinese oil major's potential to
grow in a nascent shale oil and gas sector.
China, widely thought to hold the world's largest
technically recoverable shale gas resources, hopes to replicate
the shale boom that has transformed the U.S. energy landscape.
It wants to build on its success developing fields of
easier-to-extract "tight gas", but faces technological and
environmental challenges due to complex geology, a high
population density and water shortages.
That offers opportunities for oil service specialists such
as Weatherford, Schlumberger, Halliburton and
Baker Hughes, all of which have been in China for
decades but have largely focused on exploring conventional oil
Weatherford, valued at $11 billion and one of the industry's
most acquisitive firms, about a year ago started talks with
Sinopec Oilfield Service Company (SOSC), a new upstream service
arm of the Chinese energy giant, to explore the possibility of a
joint venture. Talks have now entered an advanced stage, two
people with direct knowledge of the matter told Reuters. They
didn't want to be named as they are not authorized to speak to
An alliance, likely to include integrated services from
drilling and well construction to well completion and equipment
manufacturing, will probably be announced by the end of this
year, if negotiations are successful. The joint venture would
likely be controlled by the Chinese firm and would have
registered capital of at least $50 million, said one of the
people, an industry executive.
SOSC declined to comment, while Weatherford was not
immediately available to answer questions.
MUCH TOO YOUNG?
Weatherford, with $15 billion in global revenue in 2012,
also wants to "support" the Chinese partner's planned initial
stock offering that is likely to be launched as early as next
year, the executive said without elaborating. "Local partnership
is an essential direction of growth for Weatherford (in China)."
Apart from providing specialist tools and managerial skills,
Weatherford, which last year raked in $300 million in revenue
from China services, would contribute expertise in areas such as
high-pressure, high-temperature drilling.
SOSC, incorporated last December and with revenue that
almost matches Weatherford's, is currently merging Sinopec's
eight regional service arms into a company employing 140,000
Some industry participants said a joint venture with a heavy
focus on shale could struggle as China's shale sector is still
"A key question is: is there enough revenue to be generated
under such a JV? Without that the Chinese had better not expect
to gain much know-how," said an executive with a Chinese
oilfield service company.
China, the world's fourth-largest natural gas consumer, has
so far drilled fewer than 150 shale gas wells with tiny
commercial production. Industry officials say any significant
increase in output is unlikely until the latter half of this
Weatherford, with headquarters in Switzerland, had detailed
discussions about a decade ago with China's offshore oil and gas
specialist CNOOC Ltd about setting up a joint venture.
That didn't happen due to differing strategies, said the Chinese
executive who had direct knowledge of the situation.
But Sinopec, Asia's top refiner, has a much smaller and
nimbler exploration department than rivals such as PetroChina
, the country's largest oil and gas producer. Sinopec
is also eager to grow its shale business both in China and
Sinopec operates vast onshore acreage including part of the
Sichuan basin, the country's top gas region, and has invested in
U.S. shale assets in partnership with Devon Energy Corp
and Chesapeake Energy Corp.
The impetus for the talks came from senior management at
both firms, the sources said. Sinopec Chairman Fu Chengyu, who
embarked on restructuring the company's sprawling service
divisions shortly after taking up his post in 2011, was key in
initiating the possible alliance.
The proposed tie-up would be larger than existing service
JVs that were mostly set up by China Oilfield Service Ltd
(COSL) in the early days of China's offshore oil
development in the 1980s. Each of these specializes in a single
service such as supplying drilling mud.
In more recent team-ups, Schlumberger bought a 20.1 percent
stake in privately-run Anton Oilfield Services Group
for $80 million last year, and Royal Dutch Shell joined
China National Petroleum Company (CNPC) in 2011 in establishing
Sirius Well Manufacturing Services.
(Editing by Joseph Radford)