The agreement would lead to formation of an "entity", that would forge partnerships among global oil majors, they said.

"We are aiming to reach an agreement by the end of June," said an industry official who is familiar with the deal.

The deal would involve CNOOC and Sinopec Star Petroleum Corp, a Sinopec unit involved in the exploration and development of the East China Sea.

Sinopec hopes to speed up talks to strike a deal, which is expected to raise the profile of Sinopec Star, the official said.

Sinopec Corp, another Sinopec unit which has overseas listings, is aiming to buy Sinopec Star from its parent by using funds from an initial public offering on the mainland.

Sinopec Corp will issue up to 3 billion Shanghai A shares to raise 10 billion yuan (US$1.2 billion) in July, most of which would be used to fund the acquisition.

The industry source said Sinopec and CNOOC, China's second- and third-largest oil companies, were still negotiating the form of co-operation and might consider forming an entity in which each company would own half.

Once the entity was formed, the Chinese oil giants hoped to lure foreign oil firms as partners in the development, with Royal/Dutch Shell Group and US-based Unocal possible candidates, the sources said.

Shell pumped about US$600 million into the global stock offerings of Sinopec and CNOOC partly to try to get involved in gas projects in the East China Sea, one of the most lucrative regions because it is close to China's wealthy east coast.

"The recoverable gas reserves in the Xihu Basin are estimated at about 300 billion cubic metres," a second source said.

"Key exploration and development areas are centred at the Chunxiao, Pinghu and Huangyan fields."

Chunxiao, one of China's top three gas offshore finds, is the biggest discovery in the Xihu Basin east of Shanghai, where Sinopec has proven reserves of about 54 billion cubic metres (bcm).

Sinopec aims to develop the field to produce up to 3 bcm per year by about 2005.

Pinghu, the only Xihu field in commercial production, has proven gas reserves of 11 bcm, and that is likely to double by the end of 2003.

CNOOC plans to drill seven wells in the Xihu Basin this year and hopes to begin commercial production at other fields by 2003, the second source said.

Agencies via Xinhua

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