Unocal Corp and the Royal Dutch/Shell Group are withdrawing from a project to exploit oil and gas in the East China Sea, the companies said yesterday in Shanghai, citing "commercial reasons."
In a deal signed last year, Chinese subsidiaries of Unocal and Royal Dutch/Shell each held a 20 percent stake in contracts to explore for, develop and market natural gas resources in the Xihu Trough of the East China Sea.
China National Offshore Oil Corp, or CNOOC, and China Petrochemical Corp, also known as Sinopec, each held a 30 percent stake.
The foreign partners in the venture had agreed to assume all the risk during exploration, but the contracts required a final investment decision to be made after a 12-month period of appraisal and analysis.
"Over the past year, we have conducted a detailed resource assessment and studied various development options," Don R. Hansen, vice president of Unocal International Energy Operations, said in a statement. "For commercial reasons we have elected not to proceed with the project."
Value of the deals was not disclosed.
Unocal said it expects to record a charge of approximately US$10 million after-taxes in the third quarter of 2004 for settlement of its remaining obligations in the project.
The East China Sea is resource-rich.
Sinopec, in a statement released yesterday, said it regretted the withdrawal.
However, both Sinopec and CNOOC, China's biggest offshore oil and gas producer, have said the gas development project remained on schedule.
"We are confident about the project's future," Fu Chengyu, chairman and chief executive of CNOOC said in a statement issued on Tuesday in Hong Kong. It said significant progress had been made.
The project calls for commercial production of 35 billion cubic feet of natural gas a year during the first phase, from mid-2005.
Gas is to be delivered by pipeline 350 kilometers to nearby Zhejiang Province and Shanghai.
Experts estimate that the Xihu Trough fields could have reserves of up to 40 billion cubic meters of natural gas and 10 million to 20 million barrels of oil, according to media reports.
Under an agreement reached in 2001, CNOOC is operator of the field, with Sinopec holding a 50 percent working interest. Unocal has a 49 percent working interest in a liquefied petroleum gas terminal in Jiangsu Province.
"We have enjoyed excellent cooperation with both CNOOC and Sinopec, and we look forward to other opportunities to work together," Hansen, Unocal's vice president said.