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Oil Majors Eye South China Sea

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The South China Sea is currently the center of attention for exploration and production (E&P) activity. Despite battling the Gulf of Mexico (GoM) oil spill, BP plc (BP - Free Report) joined with Chevron Corp. (CVX - Free Report) to bid for a South China Sea exploration block. This was followed by CNOOC Ltd.’s (CEO - Free Report) stake purchase in this area early this week from Devon Energy Corp. (DVN - Free Report) .
Though the block has not been identified, Devon selected BP and Chevron as buyers for its right on the block 42/05, according to Devon is in the process of selling all of its China assets in order to focus more on domestic onshore drilling and to pullout from international oil and gas operations.
Chevron will act as an operator and hold a 60% stake in the block, while BP will have the remaining interest. However, CNOOC has an exclusive right to take a 51% interest in the block on successful commercial discovery.
The South China Sea is one of CNOOC’s major production areas in offshore China. More international integrateds are now looking at this deepwater area for their long-term production growth strategy. In the same way that companies find deepwater GoM, offshore Brazil and West Africa as lucrative areas for upstream activity, the South China Sea is the new frontier area for deepwater drilling.
Presently, Anadarko Petroleum Corp. (APC - Free Report) and BG Group of the U.K. are the main international players in the South China Sea. Proximity of the blocks to Hong Kong and other southern China provinces is the main reason that it attracts foreign companies. Following the entrance of BP and Chevron, we believe that more international companies will choose the South China Sea as their next deepwater drilling destination.

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