China May Reopen Deep-Sea Oil Hunt

BEIJING -- A major gas discovery deep under the South China Sea could reopen a frontier for oil and gas exploration that some multinational companies abandoned decades ago after shallower wells turned up dry, said the chairman of Cnooc Ltd., China's biggest offshore oil producer.

The discovery, announced in June by Cnooc's Canadian partner, Husky Energy Inc., is a "tremendous breakthrough for us," Fu Chengyu said in an interview Tuesday.

The statement was the first time that Cnooc, the listed arm of China National Offshore Oil Corp., has made clear how important it thinks the field could be. Cnooc has the option to buy a 51 percent stake in the field.

Husky, controlled by Hong Kong billionaire Li Ka-shing, said the field, China's first deep-water discovery, is about 150 miles south of Hong Kong beneath 4,500 feet of water. Husky estimates that it contains 4 trillion to 6 trillion cubic feet of recoverable natural gas.

Cnooc has 5.8 trillion cubic feet of booked natural gas reserves.

"This will become the second growth era for Cnooc," Fu said. "This is one area that will make a big change to this company."

Fu said he expected oil prices to remain high in the short term because of such geopolitical factors as instability in the Middle East that were not going to be resolved soon.

"From the demand-and-supply point of view, the price is a lot higher than it should be. But this is high for other reasons, such as geopolitical risks, which are causing most of this high oil price," he said. Hedge funds are also bidding up prices, Fu said.

"Iraq, Iran, the Middle East -- those will not go away in the short term. That gives people a lot of room for imagination," he said. "That's why you see oil prices still going up. If there's something else, they may go up again even higher."

The discovery by Cnooc and its partner could revitalize exploration in the once-promising South China Sea. In the 1980s, China encouraged big oil companies to spend billions of dollars to drill in an area that many hoped would be the new Gulf of Mexico or North Sea, two regions rich in hydrocarbons.

Interest in the region dropped after explorers drilled a succession of dry holes and global oil prices started falling. Many companies gave up on the area.

But new technology allows deeper drilling. And the soaring price of oil -- now within striking distance of $80 a barrel -- is making more challenging projects economical to develop.

Cnooc does not have the in-house skills for deep-water drilling but has partnered with foreigners in the quest to feed China's fast-growing appetite for energy.

"This is a tremendous, vast area that we never touched before," Fu said. "This discovery . . . will bring a new height for investment in exploration, not just for our company, but also including multinational companies."