Shell Looking To Cash In On PetroChina's Quest For Shale Gas

By Robert Sullivan - Exclusive to Gas Investing News

A string of recent ventures involving Royal Dutch Shell plc (NYSE:RDS.A) and PetroChina Co. Ltd. (NYSE:PTR) has started to reveal what may eventually emerge as one of the world's premier shale gas partnerships.

China, with an 1,275 trillion cubic feet (tcf) of technically recoverable shale gas resources, is certainly not short of supply, but what it does lack is the technology and know-how to extract the hard to reach gas from the country's complex shale formations.

It has tasked its three major state-owned oil and gas companies: PetroChina, Sinopec Corp. (NYSE:SHI), and CNOOC  Ltd.(NYSE:CEO), with acquiring the requisite expertise in shale development from foreign operators to unlock their vast domestic reserves.

And PetroChina, the listed arm of state-run China National Petroleum Corp. (CNPC) and the largest downstream operator of the three, has increasingly been turning to Shell to achieve this.

Shell-PetroChina tie-ups

The first significant unconventional gas project together was a $1.3 billion tight gas JV at the Changbei  gas field in Northern Shaanxi province.

With the first commercial production in 2007, the field now produces 3 billion cubic meters (bcm) of gas per year, due in large part to horizontal drilling led by Shell.

Shell and PetroChina also partnered up in 2010 to jointly acquire Australian coal-seam gas (CSG) developer Arrow Energy Ltd. for $3.77 billion.

Arrow has since acquired fellow CSG developer Bow Energy Ltd. for $540 million, and the output from both companies is expected to feed Arrow's proposed Liquefied Natural Gas (LNG) project in Queensland, with LNG from the facility more than likely to be sent onwards to China.

In December, meanwhile, a Shell-PetroChina JV discovered shale gas at their Fushun-Yongchuan block in Sichuan province.

Although the well took nearly 13 months to drill, its completion marked another important milestone for PetroChina, who had already drilled the country's first ever horizontal shale well in March 2011.

Shell and PetroChina are now looking to sign a production sharing contract (PSC) to move forward and develop the Fushun-Yongchuan project, and PetroChina have also been drilling two of their own wells in Sichuan.

Results such as this one will certainly be what both Shell and PetroChina had in mind when they agreed in June 2011 to increase cooperation in energy exploration in China.