Shell China Exploration and Production Company Limited has acquired a 55-percent equity interest in a coal-bed methane venture in North China's Shanxi Province and will take over as its operator, said sources with the company on Thursday.
This was the first contract signed by Shell to develop China's rich coal-bed methane resources. China has 31 trillion cubic meters of coal-bed methane resources with 16 trillion considered to be easily recoverable.
According to a white paper titled "China's Energy Conditions and Policies" published on Wednesday, China will encourage the development of coal-bed methane and foreign investment in unconventional energy exploration and development.
China's Ministry of Commerce recently approved an agreement for Shell to acquire Canada-based Verona Development Corporation's majority equity position in a 30-year production sharing contract (PSC) covering the North Shilou block, an area of 1,015 square kilometers in the eastern part of the Ordos Basin.
Verona maintains a five-percent interest in the venture, with China United Coalbed Methane Company (CUCBM) holding the remaining 40 percent equity.
The exploration phase of the PSC will end in December 2010. Following this, the PSC stipulates five years of development and a 20-year production period.
A comprehensive appraisal program, comprising 2D seismic acquisition and the drilling of pilot wells, will start early next year.
Lim Haw-Kuang, Executive Chairman of Shell Companies in China, said that the North Shilou PSC was another important step for the Shell Group in developing a significant, long-term business in China and globally.
Shell is confident that its upstream technologies and expertise can help unlock the vast potential of coal-bed methane in China, said Lim.
This is Shell's third upstream PSC venture in China, after the Xijiang offshore oil development in the South China Sea with CNOOC and ConocoPhillips and the Changbei gas field in the Erdos Basin with PetroChina.
CUCBM signed a PSC with Verona covering the North Shilou block in 2005, in which Verona holds a 60 percent equity interest and CUCBM 40 percent.
Following the cooperation agreement with Shell, CUCBM hopes that more international energy giants would enter China's coal-bed methane exploration field, said Sun Maoyuan, general manager of CUCBM.
CUCBM is China's major coal-bed developer, with PetroChina and China National Coal Group holding 50 percent shares each.