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Analyst Blog

Asia’s largest refiner Sinopec Corp. (SNP - Analyst Report) has announced that it has no concrete plan to establish an oil service joint venture with Switzerland-based Weatherford International Ltd. (WFT - Analyst Report).

China, which presumably holds the largest shale resources, faces various technological and environmental hindrances, from operating at full capacity. The challenges comprise the country's multifaceted geology, high population density and water scarcity.

With a view to tap the region’s high potential of the region, Weatherford began discussions with the Sinopec Oilfield Service Company for an alliance, a new upstream service arm of the Chinese energy giant, to explore the likelihood of a joint venture, a year ago.

The alliance aimed to obtain Weatherford’s technological know-how and was expected to consist of integrated services from drilling and well construction to well completion and equipment manufacturing. The joint venture was anticipated to be announced by late 2013 and was to be operated by the Chinese firm.
 
Although, Sinopec was seeking a partner for the development of Chinese shale resources and had reached advanced talks with Weatherford, it announced that no plan has yet been formalized.

Sinopec’s goal to build on the success by extracting gas from developing fields offers opportunities to other oil service specialists like Schlumberger Ltd. (SLB - Analyst Report), Halliburton Co. (HAL) and Baker Hughes Inc. (BHI - Analyst Report).

Recently, Sinopec came out with its first half results, which improved on account of outstanding results in oil and gas exploration on domestic growth in five key areas, including Tarim Basin, the western rims of the Junngar Basin, the Ordos Basin, the Sichuan Basin and the Xihu depression. The region holds immense potential which will favor its earnings going forward.

Sinopec currently retains a Zacks Rank #3 (Hold).