China National Petroleum Corp. (CNPC) Wednesday established an offshore oil engineering subsidiary. It is an important step for China's largest oil producer, helping it boost the exploitation of oil in China's waters.

The new subsidiary, China National Petroleum Offshore Engineering Co. Ltd. (CNPOEC), could also expedite CNPC's overseas expansion by tapping into foreign countries' offshore reserves.

CNPC yesterday created the engineering company by consolidating the drilling, construction and engineering assets and design institutions of two of its subsidiaries -- Liaohe Oil Exploration Bureau and Dagang Petroleum Group.

The engineering firm will mainly conduct offshore well-drilling, engineering, design and maintenance of offshore oil production platforms.

Up to now, CNPC has explored and developed oil production on land and in shallow waters no deeper than five meters. China National Offshore Oil Corp. (CNOOC), the nation's third largest oil producer, dominates offshore oil production.

But earlier this year PetroChina, CNPC's subsidiary, clinched its first license to search for oil in the South China Sea. The government hopes the move will promote oil exploitation offshore, helping increase domestic oil supply.

At present, CNPC produces about 1 million tons of oil in shallow waters in Bohai Bay, less than 1 percent of its total production. With more effort pouring into offshore exploration, CNPC plans to pump out 4 million tons of crude in Chinese waters by 2010.

"The set-up of CNPOEC is a strategic step for CNPC to speed up offshore oil exploration," Liu Haisheng, chairman of CNPOEC, said yesterday at the launching ceremony.

The company has already made "surprisingly encouraging" discoveries in Liaohe, Dagang and Jidong in the Bohai Bay area recently.

Shi Lin, general manager of CNPOEC, said the launch of his company is also significant for CNPC's drive for overseas expansion as it negotiates to tap offshore oil in foreign countries. Potential reserves could be "much larger" than CNPC's domestic offshore oil production, Shi says.

The establishment of CNPOEC may threaten the dominance of Hong Kong-listed CNOOC Engineering in the offshore oil engineering service business in China. CNOOC Engineering now carries on most of the engineering service work of its parent company CNOOC.

But Shi said there was enough demand for both companies. "It is not a problem of competition, but a problem of too large a market. We cannot finish our current work for at least the next three or five years."

Compared to onshore exploration, China's offshore oil has remained largely untapped. It is estimated that more than 80 percent of offshore oil reserves have not yet been identified.

China's offshore oil production reached 27 million tons last year, representing about 15 percent of total production. Most of the oil was produced by CNOOC and its foreign partners.

(China Daily November 4, 2004)