CHINA STRESSING ONSHORE E&D TO SPUR CRUDE OUTPUT

China has stepped up its search for onshore oil and gas in an effort to revive flagging production growth.

After jumping more than 31% during 1982-86, China's oil production has stagnated in recent years at about 2.7 million b/d. At the same time, oil consumption has jumped sharply, chewing up oil exports needed for critical foreign exchange earnings.

China earlier had set an ambitious target of 4 million b/d by 2000, pinning its hopes mainly on a production spurt from a series of hoped for big offshore discoveries by foreign operators.

Because those discoveries have proven considerably more modest than expected and some mature areas have shown sharp declines, Chinese oil officials are resorting to other means to boost production.

They include:

• Increasing exploration and development in remote, underexplored basins in western China.

• Increasing infill drilling and development efforts in proven areas.

• Stimulating production with the introduction of western technology.

• Accelerating exploration for and use of natural gas.

At the same time, China continues to press efforts to attract foreign interest in its offshore areas. China's offshore production is ramping up slowly-lagging that of its surprising Communist neighbor to the south, Viet Nam (OGJ, July 15, p. 23)-as discoveries of the 1980s begin to go on stream.

Perhaps the linchpin of China's efforts to hike oil production is the E&D campaign in the Northwest. China's press has reported a string of discoveries and extensions in the region in recent months.

Western basins, notably Tarim, offer the brightest prospect for the kind of giant fields needed to increase Chinese oil flow and sustain exports through the decade. Whether that can be accomplished without direct foreign participation in E&D as well as an infusion of technology is the pivot point for China's near term petroleum future.

CHINA'S GOALS

Beijing has set specific goals for oil production in the eighth 5 year plan (1991 -95), targeting an increase to 2.9 million b/d by 1995.

Current plans beyond that are vague, with the Chinese government saying only that oil production would increase by a "wide margin" by 2000, reported Xu Yihe, China Features staff writer.

This reflects the government's acknowledgment that oil production has stagnated and although sizable reserves have been identified in the West, producing them may be financially difficult for the cash strapped country, Xu wrote.

The government hiked investment in onshore development to $5 billion in 1990 from $3 billion in 1986.

A pressing need for foreign exchange earnings is driving the investment effort. China got a big boost in foreign earnings last year with the loss of Iraqi and Kuwaiti oil exports and accompanying oil price spike during the Persian Gulf crisis. China exported almost 580,000 b/d of crude in 1990, exceeding target by 100,000 b/d, Xu wrote. Beijing currently is targeting crude exports of 500,000 b/d in the near term.

China currently consumes more than 2 million b/d of crude, a rate that is expected to increase by 120,000-140,000 b/d/year in the near term, Xu reported.

China's production increased slightly in May, to 2.795 million b/d from 2.7 million b/d in April (OGJ, June 3, p. 32), but first half production is expected to fall short of plan at 49.7% of annual quota.

Natural gas production is expected to be 725 MMcfd during the first 6 months, 50.9% of the annual quota.

A multiagency study places China's potential gas resource at about 1.5 quadrillion cu ft, broken out as 38% dry gas, 20.4% associated gas, 34.3% coal seam gas, and about 7% from biomass.

TURNING TO THE WEST

About 80% of China's oil reserves are in the eastern part of the country, source of about 90% of the country's oil production.

Although production has increased in eastern fields, the region's year to year increase has dropped to 8,100 b/d in 1990 from 117,000 b/d in 1986, Xu wrote.

After 30 years of intensive development, eastern fields are being depleted, and China is looking to discoveries in the West to give new life to the country's production.

Of special interest are the vast basins of the Northwest: Tarim, Turpan-Hami, and Junggar in Xinjiang Uygur autonomous region, Qaidam in Qinghai province, and Shaan-Gan-Ning in Shaanxi, Gansu, and Ningxia provinces. There are more than 200,000 workers comprising 300 drilling "teams" in the northwest basins, Xinhua News Agency reported.

Xinhua quoted official predictions oil production from these basins will more than double to almost 400,000 b/d by 1995.

TARIM POTENTIAL

China cites the Tarim basin in Xinjiang as the hope for the future.

Chinese geologists peg Tarim potential resource base at 130 billion bbl of oil equivalent.

China National Petroleum Corp. (CNPC) has drilled 48 wells in the basin to date, with 28 productive.

Earlier this year the first Tarim basin oil made its way to refineries in Gansu province. Tarim production totaled 1.27 million bbl in the first quarter and is expected to reach 3.65 million bbl for the full year.

A key to the remote desert basin's development prospects is progress on infrastructure. A 345 km highway from Lunnan to Tazhong, under construction since March 1990, should be complete in about 3 years.

Xu noted in spite of its confidence in the area, Beijing has slashed the exploration budget for Tarim to $300 million for 1991-92 from $600 million spent in 1989-90.

Since then, Bank of China has stepped in with a long term $1.2 billion loan, earmarked for exploitation of oil reserves in the basin.

Tarim E&D is costly, given deep pay, high reservoir pressures and temperatures, and lack of infrastructure. The Tazhong discovery well there cost $20 million.

Although Beijing has reserved Tarim E&D for Chinese agencies, industry officials outside China contend foreign funding is a must for further development in the region. There have been some indications of late that the government may be relenting on that point.

Japan National Oil Corp. has tentatively agreed to invest about 8.4 billion yen in a joint venture with CNPC to conduct a seismic survey on a 30,000 sq km tract on the west side of the Tarim basin (OGJ, May 6, p. 143). The survey, to get under way in March and take about 4 1/2 years, will involve shooting and processing about 3,500 line km of seismic surveys as well as reprocessing existing data. A final agreement was expected to be signed last month.

OTHER WESTERN BASINS

Also offering bright potential in western China is the 48,000 sq km Turpan-Hami basin, where oil reserves are estimated at more than 700 million bbl.

Fifteen wells in the basin have been productive, yielding light crude from a 126 m thick pay zone, Xu wrote.

Full scale development of the Junggar basin, also in Xinjiang Uygur autonomous region, is moving ahead in the wake of an oil discovery made in late May in the heart of the basin.

Development had focused on the western flank with some activity to the south and east, with 56 producers drilled so far.

The government has allocated nearly $500 million to speed exploration in the Junggar basin and to maintain its aggressive development program in the Karamay area (OGJ, May 20., p. 37). Officials target Karamay production of 174,000 b/d by 1995, up from an expected 140,000 b/d in 1991.

In addition, Beijing has earmarked about $1 billion for exploration and refining operations in the 120,000 sq km Qaidam basin during 199195. That compares with Qaidam investment of about $500 million in the previous 5 year planning period.

A plus for the area is completion of a 436 km oil pipeline connecting oil fields to the proposed 20,000 b/d Golmud refinery, which is to be complete in 1994.

The basin's current productive capacity is about 20,000 b/d of oil and 97 MMcfd of gas. It holds 16 oil and six gas fields. Qaidam's resource potential is pegged at 15 billion bbl of oil and more than 3.5 tcf of gas. Production jumped to about 16,000 b/d in 1990 from 4,000 b/d in 1985.

New technology has enabled China to tap the previously intractable Ansai field in the Shan-Gan-Ning basin. The field is characterized by low permeability-about 0.49 md. Xinhua reports tests of hydraulic fracturing the past few years increased one Ansai well's production to 31 b/d from 11 b/d.

Hu Wenrui, vice-director of Changqing Oil Exploration Bureau, told Xinhua the field is expected to produce more than 9,300 b/d by yearend and climb to almost 21,645 b/d by 1995.

RECENT DISCOVERIES

China may have its biggest onshore gas discovery in a region that is one of the country's poorest.

Located between Hengshan and Jingbian in the Shaan-Gan-Ning basin, geologists have identified a potentially productive trend covering as much as 3,200 sq km from Shaanxi into Ningxia and Inner Mongolia, Shi Xingquan, director of the Changqing Petroleum Exploration Bureau, told Beijing's China Daily newspaper. Reserves are estimated at 2-3 tcf of gas.

Large scale exploration of the area has yielded success at every well drilled in the first 5 months of this year (OGJ, June 3, p. 32). On average, each well flowed about 7 MMcfd, with one reportedly flowing as much as about 35 MMcfd.

The exploration bureau is conducting a feasibility study to boost gas production to 290 MMcfd, Xinhua reported.

In Tarim basin action, an oil and gas discovery points to a new horizon as prospective.

The 22 Sha discovery in the northern part of the basin reportedly flowed 7,348 bbl of oil and 8.5 MMcf of gas from Triassic Kelamayi sandstone during a test of unspecified duration, reported Wang Mingwu of the Institute of Exploration Technique. Most production in the basin is from Paleozoics, Wang pointed out.

Two discoveries have been made in the northern part of the basin, near Jilake, and four more exploratory wells are under way.

The 57 Lunnan discovery flowed 3,317 b/d of oil and 10 MMcfd of gas, while 4 miles away 58 Lunnan flowed 2,572 b/d of oil and 19 MMcfd of gas from Triassic at about 4,300 m.

Neither well has reached projected depth of 5,500 m, but geologists indicate the possibility for finding deeper pay as well.

A discovery well in the heart of the Junggar basin, 2 Caican, flowed as much as 337 b/d of oil and 133 Mcfd of gas from pay above 3,752 m.

Xie Hong, director of Xinjiang Oil Administration, told China Daily the bureau plans a concerted exploration effort in the heart of the basin.

Eastern basins still offer potential for modest discoveries. Chinese explorationists recently confirmed a 7 million bbl field in Jiangsu province and a 700,000 bbl field in Guangxi province.

OLDER FIELDS REVIVED

Increased flow of new technology into China the past several years has aided in buoying production in older fields.

One of China's oldest producing areas, Laojunmiao producing complex in Gansu province, is enjoying a revival with a string of four new pool strikes.

Xinhua reports oil field officials as saying development of one area is in full swing and expected to yield 4,000 b/d of oil this year.

Production from Yanchang oil complex, oldest on China's mainland, experienced an average 18.7% growth rate during 1981-90, producing a total 14.16 million bbl in the period. That is triple the level of production the complex, discovered in 1905, yielded the preceding 75 years.

Profits from the area registered $30.96 million in 1990, 22 times those of 10 years ago.

Production in 1991 is expected to reach 8,600 b/d.

Gao Pengfei, director of Yanchang Petroleum Field Administration, told China Daily he credits part of that growth to advanced technology, including two drilling rigs imported from the U.S. in 1984.

The administration expects to increase production to 11,600 b/d by 1995. Plans call for drilling another 1,710 wells in the area, with total footage of 940,000 m. It estimates the area's potential resource at 400 million bbl.

DAQING

China's largest oil producing complex, Daqing, in East China's Heilongjiang province, experienced a production increase in May, producing 1.14 million b/d vs. 1.119 b/d million in April (OGJ, June 3, p. 33).

Production surpasses the original target by 7,454 b/d.

Officials attribute part of the increase to technology upgrading and expect total production of 1.12 million b/d for the year.

The potential remains for further production growth, with reserves potential outside the main producing area estimated at 3.65 billion bbl, said Zhou Yongkan, CNPC vice-president.

Daqing production has remained remarkably constant, remaining at about 1.1 million b/d each of the past 15 years.

BOHAI AREA

China is stepping up development of Jidong oil field, an offshore extension of onshore production recently discovered in the northern Bohai Bay off East China's coast. Production there is expected to reach 8,000 b/d this year and climb to 20,000 b/d by 1995, Xinhua reported.

Site is east of Beijing in the Tangshan-Qinhuangdao area. The field began production in 1988.

Exploration in the area is being extended east from the mainland into the shallow bay, where a number of wells are planned this year. With the offshore extension, Zhao Liusheng, field deputy chief geologist, estimates the area's potential reserves at as much as 1 billion bbl.

Bohai offshore production has climbed to 24,000 b/d from three fields developed by a Sino-Japanese joint venture. The most recent Bohai start-up, Chengbei, produces 8,000 b/d. Three other fields are under development, and Bohai production is expected to climb to 40,000 b/d of oil and about 48 MMcfd of gas.

To date, state owned Bohai Oil Co. has signed seven contracts with multinational oil companies covering more than $700 million in foreign investment.

EAST CHINA SEA GAS

Shanghai plans to take delivery of natural gas from Pinghu oil and gas field in the East China Sea for residential consumption.

Du Yuanshun, director of Shanghai Public Utilities Bureau, told China Daily the city is prepared to use 5.96 MMcfd of gas, equal to production of Pudong Gasworks, for 10-15 years.

To date only 54% of the urban households have a gas supply, although the city supplies residents with 176.5 MMcfd.

The plan calls for an investment of about $300 million, which will come from state loans and foreign governments and banks.

Shanghai expects to invest 3 billion yuan to promote utilization of domestic natural gas.

The East China Sea may prove to be the next area of joint venture participation with foreign oil companies.

Previously reserved for the Ministry of Geology and Mineral Resources, exploration in the East China Sea also will be undertaken by Cnoon, reports China Features' Qi Daqing.

The ministry began seismic surveys in the region in 1974 and spudded the first well in 1985. Of 16 exploratory wells drilled, eight have yielded commercial oil or gas and six hydrocarbon shows, Qi wrote.

The ministry continues to operate a seismic vessel built in the U.K. and outfitted in the U.S. to conduct 2-D and 3-D surveys in the East China Sea. The ministry drilled another three appraisals in the area in 1990. Plans call for preliminary development of Pinghu oil and gas field during 1991-95 with full scale development slated for 1996-2000, Qi wrote.

SOUTH CHINA SEA

Exploratory drilling in the South China Sea has slumped from the brisk pace of the early 1980s, but two multinational companies are showing fresh interest in the area, and several key fields in the Pearl River estuary are expected to begin producing this year.

BP Exploration China and Norway's Den norske stats oijeselskap AS recently expressed a renewed interest in the South China Sea, south of Guangzhou, and in an area to the west, south of Hainan Island (OGJ, July 22, p. 39).

By 1995 South China Sea production is expected to reach 120,000 b/d, said China National Offshore Oil Corp. (Cnooc) unit Nanhai East Oil Corp. (NEOC), making it the country's top offshore crude producing area and sixth largest overall.

Chinese and foreign companies have to date conducted 64,581 line km of seismic surveys in the area, found 19 fields, and drilled 86 wells, of which 25 yielded oil.

NEOC expects at least five oil fields to begin producing in 1991-95.

Although plagued with technological problems (OGJ, Feb. 4, p. 20), Liuhua 11-1 field is considered the most exciting discovery in the area. Oil in place is pegged at 700 million to 1.4 billion bbl, making it the largest producing complex off China, Xu wrote.

Last January, NEOC signed a contract with Amoco Orient Petroleum Co. to jointly develop the field, expected on stream in 1992 with initial production of 6,100 b/d from six wells (OGJ, June 3, p. 32).

Huizhou 26-1, a 1988 discovery by ACT Group, is expected on stream in September (OGJ, June 3, p. 32). Original oil in place is estimated at 150 million bbl.

Production facilities have been installed in the area near Huizhou 26-1 and an earlier discovery, Huizhou 21-1, that include a platform for primary gas-liquid separation, a floating production/storage tanker, and a turret moored loading buoy. Production from the 39 million bbl Huizhou 21-1 is expected to peak this year at about 29,000 b/d.

Development of Huizhou in 1988-89 entailed drilling 15 wells through a seabed template installed in 381 ft of water. It produces from 10 wells tapping six sands at 2,800-3,000 m. Another four wells are water injectors.

Combined peak production of the two fields is projected at 80,000 b/d in 1992.

Another discovery, ACT's Huizhou 32-2-1 (OGJ, June 3, p. 32), just 10 km from Huizhou 26-1, may be tied back to those other Huizhou production facilities. It flowed 15,000 b/d this year.

OFFSHORE PROSPECTS

Despite industry's disappointment that the South China Sea has not proven another North Sea, explorationists have confirmed 3 billion bbl of reserves in the area, half of China's proven offshore oil reserves. Since 1979, Cnooc and subsidiaries have signed 58 contracts with 48 foreign oil companies, which have thus far invested $3 billion in Offshore China E&D. They had discovered 64 hydrocarbon bearing structures by midyear 1990.

Cnooc projects China's offshore crude production will climb to 60,000 b/d in 1991 vs. about 18,000 b/d in 1989 and 14,000 b/d in 1988-to 100,000 b/d in 1992 and more than 160,000 b/d by 1995, when more than 20 fields are to be on stream.

Whether China's offshore output grows much beyond that level later in the decade depends largely on Beijing's efforts to revive interest. Cnooc's success at convincing Beijing to revise terms of the model contract for offshore work may prove the key (OGJ, June 3, p. 32).

Because of sweetened terms, Cnooc signed 10 agreements with foreign companies, the biggest since the 1986 crude oil price collapse. Most of the companies signing expressed interest in the East China Sea, Qi reported.

Cnooc has completed preparations for a tender, including mapping out parcels in the East China Sea.

State Council approval is expected soon, with an invitation for bids to follow soon thereafter, Qi wrote.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.