CNOOC Offers 26 Blocks in China

China's top offshore oil producer CNOOC Ltd. (CEO - Analyst Report) is seeking assistance from foreign companies to develop 26 offshore blocks – estimated to span 73,754 square kilometers – in the South China Sea, East China Sea and Bohai Bay.

Of the blocks being offered, 22 are in the South China Sea. Per the analyst reports, none of these blocks lie in disputed areas. Of the remaining blocks, three are situated in the East China Sea and one in northern Bohai Bay.

The majority of blocks being presented in the new round are in the shallow waters, reaching a depth of 5–200 meters. Only three blocks lie in the deeper waters of the eastern part of the South China Sea, between 700 meters and 3,000 meters.

This is the second time that CNOOC has embarked on such a venture in 2012. Earlier, nine offshore blocks were offered in June. These blocks were totally unexplored, unlike the recent blocks offered.

The new round offers blocks that have witnessed some exploration work including seismic and exploration drilling. The data collected from such operations should help the prospective investors to a great extent. The foreign companies will have access to such information till November 30.

Per the current offshore production-sharing contract terms of China, foreign companies are liable for all the risks and expenses during the exploration phase. Later, during the development and production phase, the foreign companies are permitted to take in a partner for a maximum stake of 49%.

Recently, CNOOC cut a deal to purchase Canadian energy producer Nexen Inc. (NXY) for approximately $15.1 billion in cash. The deal signifies the country’s biggest foreign takeover so far. These efforts reflect CNOOC’s intention to accomplish the aggressive production growth targets set for the current year.

CNOOC holds a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation on the stock.