PLANS OUTLINED FOR NEW ACREAGE IN BOHAI BAY OFF EASTERN CHINA

China National Oil & Gas Exploration & Development Corp. and The Exploration Co. of Louisiana Inc. (XCL), Lafayette, La., have disclosed details of their plans for the Zhao Dong block in Bohai Bay off eastern China. The China state company and XCL last month agreed under a 22 year production sharing contract to explore for, develop, and produce Zhao Dong hydrocarbons (OGJ, Feb. 7?, p. 38). The present state company is a successor to China National Oil Development Corp. and is still referred to

March 1, 1993

4 min read

The China state company and XCL last month agreed under a 22 year production sharing contract to explore for, develop, and produce Zhao Dong hydrocarbons (OGJ, Feb. 7?, p. 38).

The present state company is a successor to China National Oil Development Corp. and is still referred to as Cnodc.

WHO WILL DO WHAT

The production sharing agreement (PSA) requires XCL to pay all exploration costs. Zhao Dong production and production costs will be shared Cnodc 51% and XCL 49%. XCL has the right to take its share of production in kind, but company officials would not speculate about possible markets for the crude.

Partners did not disclose details of PSA cost recovery provisions. But Cnodc will begin paying 51% of development and operating costs after the joint venture makes a commercial discovery. XCL said beginning of the contract's production phase could get under way within 2 years.

Specific operations XCL must fund include drilling at least seven joint venture wildcats during an initial 7 year exploration phase, continuing to reprocess 2D seismic data, and collecting and processing at least 200 line km of 2D data.

XCL said the next 200 km of 2D seismic will be collected as soon as possible. XCL by yearend plans to spud the joint venture's first wildcat with a Chinese jack up.

During appraisal and early development, Cnodc and XCL will use mobile production equipment and floating storage on Zhao Dong. When the pace of development accelerates after startup of commercial production, partners will install larger, more permanent production and gathering infrastructure.

XCL agreed under the PSA to transfer oil field technology to Cnodc. Drilling crews are to include Chinese and Americans. Also, Cnodc personnel will work alongside XCL technicians at the latter's Houston seismic processing center as reprocessing operations continue.

XCL disclosed no spending commitment. But the Journal of Commerce reported spending of $14 million is likely during the initial exploration phase, with total development outlays estimated as high as $240 million.

ZHAO DONG DESCRIPTION

Zhao Dong is a 197 sq km tract in about 16 ft of water abutting onshore Dagang field, China's sixth largest and with cumulative production of more than 500 million bbl of oil.

XCL and Cnodc about mid-1992 signed a memo of agreement covering Zhao Dong (OGJ, June 1, 1992, p. 30).

At the time, XCL officials compared the tract's geologic setting to that of the U.S. Gulf Coast, with Tertiary strata expected to contribute most production.

XCL said Oligocene and Miocene formations productive in Dagang appear to be present on the Zhao Dong block. Seismic and subsurface data on the contract area show the presence of a 10,000 ft structured sedimentary section that includes source rocks productive in nearby onshore fields.

XCL expects Zhao Dong to be mainly an oil province. Recent Chinese estimates place Bohai Bay oil reserves at as much as 700 million bbl.

XCL said drilling around Zhao Dong underscores the block's promise:

Dagang Petroleum Administration Bureau's 7-15 Zhang well in Dagang field near the shoreline with Zhao Dong produced 6,100 b/d of oil from 11 intervals. Drilled in the late 1970s, three additional gas intervals have yet to produce.
Offshore east of Zhao Dong, the 4 Hai well drilled by a group of Japanese companies produced 9,000 b/d of oil and 3.1 MMcfd of gas from two intervals.
More recently, Bohai Oil Corp. reported a promising oil and gas discovery about 15 miles north of Zhao Dong when it tested the 18-1-1 Qikou wildcat at 11,500 b/d of oil and 7.5 MMcfd of gas.

After more than 2 years of detailed negotiations for the right to help develop Zhao Dong, XCL is strongly in favor of the U.S. granting China most favored nation trading status "without strings attached."

XCL Chairman Marsden W. Miller Jr. said the U.S. government's decision would affect directly the roles China allows U.S. companies in stepping up development of its oil and gas reserves. Also, favored nation status would help ensure human rights in China by encouraging development of capitalism and market based economic growth.