OREANDA-NEWS. October 27, 2014. China finally realized its goal of finding petroleum reserves in deepwater acreage when state-owned China National Offshore Corp. (CNOOC) successfully drilled the Lingshui 17-2-1 exploration well at the Lingshui 17-2 gas field in the South China Sea, located 93 miles (150 kilometers) south of Hainan Island in the Qiongdongnan Basin.

The Lingshui gas find has generated excitement in China’s upstream hydrocarbon sector – particularly for CNOOC whose portfolio of domestic offshore oil and gas fields are relatively mature – as deepwater prospects could emerge as the next frontier for the company.

Even so, the optimism surrounding China’s first deepwater hydrocarbon discovery has been tempered by concerns that an extension of Chinese exploration to the disputed waters of the South China Sea could trigger political, diplomatic and potentially military complications with neighboring countries.

CHINA FINDS SUCCESS IN DEEPWATER, FINALLY

CNOOC announced the Lingshui discovery in mid-September by Hai Yang Shi You 981 or HYSY 981 (UDW semisub).

The rig – China’s first locally built deepwater semisub costing \\$975 million to construct – was at the center of a diplomatic spat between China and Vietnam in May when CNOOC conducted exploration drilling near Paracel Island, 120 nautical miles from Vietnam’s coast. Vietnam is contesting China’s sovereignty over the Paracel Island, which Beijing seized from South Vietnamese troops in 1974.

The Lingshui well broke new ground for China as this was the first time a local petroleum firm succeeded in drilling a deepwater exploration well – without foreign assistance – at depths of 4,921 feet (1,500 meters).

This is CNOOC’s first deepwater success as an independent operator, but it is not the first deepwater project in China. CNOOC partnered Husky in the Liwan project which was operated by Husky during the exploration phase,” Felix Tan, an upstream analyst at consultancy group Wood Mackenzie, explained to Rigzone.

The Liwan gas project – which lies 186 miles (300 kilometers) southeast of Hong Kong in the South China Sea – is China’s first deepwater development. Gas production commenced from Liwan in March, seven years after discovery. CNOOC has a 51 percent stake in the project and operates the shallow water facilities, while Husky – holder of the remainder 49 percent interest – manages the deepwater segment of the development.

The Lingshui well flowed 56.5 million cubic feet per day (MMcf/d) of gas, equivalent to 9,400 barrels of liquids per day, Xie Yuhong, manager at CNOOC said, as quoted by China’s Xinhua news agency. Based on test results, the Lingshui field may contain large reserves of at least 1.06 trillion cubic feet (Tcf) or 30 billion cubic meters (Bcm), he said.

CNOOC is hopeful about the prospect for the Lingshui find as it indicates a huge exploration potential for the surrounding areas and could help unlock deepwater petroleum resources in the South China Sea, chairman Wang Yilin was quoted by Xinhua as saying.

Since the Lingshui gas discovery, China’s largest offshore petroleum producer has drilled two additional appraisal wells and has spud a third, Tan said in a Wood Mackenzie report last month.

With appraisal yet to be completed, it remains unclear now whether Lingshui holds sufficient gas resources for development. Still, the potential development of China’s first independently-operated deepwater petroleum project is exciting news for CNOOC given ageing domestic fields.