Statoil, PetroChina to Ink Deal on China Oil Field in October

Norway's Statoil ASA (STO) will sign its first deal with PetroChina Co. (PTR) to develop an oil field in northeastern China with geological reserves of more than 733 million barrels, an industry person familiar with the deal said Friday.

The deal, which may be signed in late October, will ensure Statoil has a continuing presence in exploration and production in China when its Liufeng 22-1 field in the South China Sea is exhausted. Statoil has a production sharing contract with Cnooc Ltd. (CEO) for Liufeng.

Under the terms of the deal, Statoil will work to raise oil output at the Fuyu oil field in Jilin province, which PetroChina started to develop in 1959.

According to a posting in March on the Web site of PetroChina's parent company, China National Petroleum Corp., only 25% of reserves at the Fuyu field had been tapped by 2002 and this recovery rate could be increased to 35% or more if advanced technology is used.

The field's oil production was 950,000 metric tons last year, equivalent to 19,078 barrels a day.

"Statoil will use its expertise in using carbon dioxide injection to develop thick oil reserves in the field," the person said.

When contacted by Dow Jones Newswires, PetroChina spokesman Mao Zefeng declined to comment. Statoil spokeswoman Rannveig Stangeland said the company wouldn't comment on rumors regarding a potential signing.

China's rapidly growing energy consumption is leading PetroChina and its main domestic rival China Petroleum & Chemical Corp. (0386.HK), known as Sinopec, to open up the country's onshore oil and natural gas sector to foreign companies, especially fields with complex geology.

PetroChina currently uses polymer and steam injection at fields in the northeast to boost oil recovery, but industry insiders say CO2 injection is more effective.

CO2 injection is also attractive to China due to the dominance of coal in the national energy mix and the large volumes of the greenhouse gas currently emitted by coal-fired power stations into the atmosphere.

In September 2006, CNPC signed a deal with United Petroleum Natural Gas Investments Ltd. for enhanced oil recovery at the Gaosheng block of northern China's Bohai Basin. Earlier this month, Hong Kong-based Enviro Energy said it had bought a 50% stake in a PetroChina-owned block in Jilin and aims to use new technology to raise production there.

Statoil has repeatedly tried to forge alliances with PetroChina for upstream projects, but has lost out to rivals in international tenders.

Most recently it was beaten by U.S. oil major Chevron Corp. (CVX) for the right to help develop PetroChina's high-sulfur Luojiazhai gas field in the southwestern province of Sichuan, which contains a prolific basin in terms of major gas discoveries.

Statoil also sought a contract for the South Sulige Block in the gas-rich Ordos Basin in northern China's Inner Mongolia region last year, but France's Total S.A. (TOT) was selected by PetroChina to be its partner instead.

However, Statoil and CNPC signaled their willingness to do business earlier this year when they signed a memorandum of understanding forging a strategic partnership. Exact details on the types of projects being considered were unavailable at the time.

Speaking at a conference in April, Kristen Kjeldstad, managing director of Statoil's China unit in Shekou, said Statoil and CNPC were discussing swapping stakes in some Norwegian oil and gas fields for assets in China.

Kjeldstad said the two sides were discussing "concrete proposals" and the catalyst was the merger of Statoil with Norwegian rival Norsk Hydro ASA's (NHY) oil and gas assets in a $30 billion deal due to complete Monday.

The new company will be called StatoilHydro and will have a daily production output of around 1.7 million barrels of oil equivalent a day.

Kjeldstad said that in order to meet the requirements of Norwegian regulators, Statoil would likely offer a portion of the enlarged company's interests to CNPC and that this was already being discussed.