Here is a brief summary of the main rules and regulations governing China's oil and gas exploration, development, and production activities:
Offshore regulations (People's Republic of China Exploitation of Offshore Oil Resources in Cooperation with Foreign Parties Regulations) provide the framework governing foreign partnerships with China National Offshore Oil Corp. in offshore exploration and production projects. Onshore regulations (PRC Exploitation of Onshore Oil Resources in Cooperation with Foreign Parties Regulations) provide the same sort of framework governing foreign partnerships with China National Petroleum Corp.'s PetroChina and China Petrochemical Corp.'s Sinopec. The onshore and offshore regulations govern the life cycle of an upstream project, from identification of blocks for exploration through production to the disposition of the block.
PRC Mineral Resources Law (MRL) and its Implementing Rules establish rights and obligations of mineral developers. Under the MRL, any party seeking to exploit mineral resources must register with the Ministry of Land and Resources (MOLAR). Exploration and development licenses are required to initiate operations. The MRL also sets the tax for resource development and establishes the mineral compensation paid to the state. It sets standards for conduct of mineral activities, including mineral surveys, restrictions on incompatible structures in mineral areas, legal liability for developers, and compliance with labor and environmental laws.
Exploration procedures (the Administration of Registration of Mineral Resource Exploration Blocks Procedures) divide exploration areas into units. Only blocks approved by the State Council are available to foreign investment. The Chinese partner must apply for the exploration license, which is valid for up to 7 years and may be extended for up to 2 years at a time. Supporting documents for the application will include a plan for the exploration of the block as well as evidence of the qualifications of the operating partner. Licenses also must be obtained from the provincial or local government prior to operations. In addition, approval authorities have the right to impose restrictions on the agreement between the foreign and Chinese parties. Licensees must undertake minimum work commitments each year of the license, generally in three areas: acquisition of seismic data, drilling exploration wells, and other exploration expenditures. Excess expenditures can be credited to the next year. The details and amounts of work commitments are negotiated into the production-sharing contract.
Exploitation procedures (Administration of Registration of Mineral Resource Exploitation Blocks Procedures) come into play upon commercial discovery. MOLAR issues production licenses at the national level, but some projects still will be subject to scrutiny by provincial and local governments. As with the exploration license, the Chinese partner must apply for this license. The supporting documents required will include a development plan. A reserves report with an anticipated productive life of the field also is required.
