China National Offshore Oil Corp., may drill a field off the Philippine coast that Royal Dutch Shell Plc and Chevron Corp. abandoned as unprofitable.

China National Offshore Oil Corp., the nation’s third-biggest oil producer, may drill a field off the Philippine coast that Royal Dutch Shell Plc and Chevron Corp. abandoned as unprofitable.

“We are studying” the Malampaya reserve, China National Offshore Vice-President Zhou Shouwei said today at the Ascope oil and gas conference in Manila. Shell and Chevron said on Sept. 30 tapping the oil would cost as much as $ 900 million, making the investment uneconomic.

Fu Chengyu, president of the Chinese state-controlled company, is looking for overseas projects after a failed attempt to buy U.S.-based Unocal Corp. for $ 18.5 billion. Participation in Malampaya, which has enough oil to meet China’s demand for four days, may help win Philippine support to explore in disputed waters near the Spratly Islands that may hold larger reserves, analysts and investors said.

“Either you compete with countries for energy resources or you cooperate,” said Winson Fong, who helps manage $ 1.95 billion for SG Asset Management in Singapore. “China needs to secure long-term, stable supplies of oil from different areas. By investing it also helps build a bilateral relationship.”

Government-owned China National Offshore has 70 percent of Hong Kong-listed Cnooc Ltd.’s shares. Fu, chairman of the subsidiary, needs overseas fields to complete his mission to double oil production over the next five years. Unocal, a takeover target abandoned in August by Cnooc Ltd. because of political opposition in the U.S., would have achieved that objective in one transaction.

China’s Demand

China’s oil demand has more than doubled in a decade, increasing the portion met by imports from zero to about 41 percent. Fuel consumption in the world’s fastest-growing major economy is rising as the auto fleet expands, while increased factory output boosts demand for petrochemicals.

The Malampaya field may have 25 million barrels of oil, Shell and Chevron said in a letter received by the Philippine Energy Department on Sept. 30. China National Offshore’s interest in tapping the deposit was reported earlier this month by the Philippine Daily Inquirer and the Manila Standard, citing Vice-President Zhu Weilin.

Shell and Chevron each have a 45 percent stake in a $ 4.5 billion project to tap natural gas from 3,000 meters below sea level in the same field off the Philippine island of Palawan. The gas supplies power stations through a 504-kilometer pipeline. Oil and gas deposits are often found in the same location.

China National Offshore and Philippine National Oil Co. also agreed during Chinese President Hu Jintao’s visit to the Philippines in May to look for oil and gas off Calamian Island near Malampaya, according to a statement from the Philippines’ foreign ministry.

South China Sea

In the South China Sea, China National Offshore, Vietnam Oil & Gas Corp., known as PetroVietnam, and Philippine National Oil completed the first phase of a joint study of oil resources in 144,000 square kilometers (54,000 square miles), the Chinese government said in a Nov. 17 statement. The study includes areas around the Spratly Islands, a collection of reefs, islands and atolls claimed by China, Taiwan, Vietnam, the Philippines and Malaysia.

The agreement to explore off the Philippine coast and in the South China Sea was signed by the parent company, while the subsidiary is carrying out the work, Cnooc Ltd. spokesman Xiao Zongwei said yesterday, declining to give details.

“Cnooc’s developing Malampaya may be part of the broader geopolitical scene,” said Mark Valencia, a maritime policy analyst who wrote the 1985 book “Southeast Asia Seas: Oil Under Troubled Water” on the Spratlys. “The three companies will move to oil exploration next, legitimizing China’s presence in the South China Sea.”

Spratly Potential

While proximity to nearby oil- and gas-producing sedimentary basins suggest the Spratly Islands have oil and gas deposits, according to the U.S. Central Intelligence Agency, a lack of exploratory drilling has prevented any estimates of oil and gas reserves, according to the U.S. Energy Information Administration.

Oil demand in China may rise 6.5 percent next year to 7.08 million barrels a day, the International Energy Agency said on Nov. 10. Output from China’s onshore and offshore fields isn’t keeping up. Production rose 3 percent last year to 3.49 million barrels a day, according to BP’S Annual Statistical Review of World Energy.

“Companies like Cnooc need to look for overseas investments to meet China’s long-term oil demand,” Agnes Deng, who helps manage $ 1.2 billion including Chinese oil stocks, at Standard Life Investments Asia in Hong Kong, said yesterday. “They need supplies overseas to support economic growth.”

China’s Imports

China’s oil imports, which have doubled since 2001, rose 5.6 percent in the first ten months of the year to 105 million metric tons or 770 million barrels, the Customs General Administration of China said on Nov. 25. China is the world’s second-largest energy user.

PetroChina Co., Asia’s largest oil company, produced 1.68 million barrels of oil overseas in the first quarter of 2005 from fields in countries including Indonesia, where the company has purchased assets from U.S.-based producers Devon Energy and Amerada Hess Corp. in the last three years.

Cnooc, China’s third-largest oil producer, pumped 333,500 barrels a day of oil from offshore fields in Chinese waters in the third quarter of this year, according to the company’s Web site. Cnooc pumped a further 22,900 barrels a day from five oil fields in Indonesia, 16 percent less than the year before.

Source : www.bloomberg.com