Non-Oil Firms Bid Aggressively in China's Shale Auction

Non-oil companies may have won most of the blocks offered in China's second shale gas auction, media and industry officials say, which may mean lucrative opportunities for service companies such as Schlumberger, Halliburton and China's Anton Oilfield Services Group.

China, the world's top energy user, is believed to hold the world's largest reserves of shale gas, which is trapped in rocks and requires a technology called hydraulic fracturing, or fracking, to unleash.

Utility, coal mining, real estate and investment firms have put in more aggressive bids than oil companies, Beijing Business Today quoted an official of the Ministry of Land and Resources as saying.

"Looking from the award results, it's fair to say that non-oil and gas firms will be involved in shale gas business," Zhang Dawei, head of the ministry's reserve appraisal center, said.

China officially launched the search for shale gas from late 2009 and has tiny commercial operations so far. The government expected large-scale shale gas development after 2015, saying the industry needs to first identify technology suitable to China's complex geology.

As many as 83 companies has made 152 bids for the right to explore shale gas deposits throughout China in a tender that opened in September and closed on Oct. 25. It covered 20 blocks with a total area of 20,002 square km (7,722 square miles).

The ministry has yet to announce the winners.

Private firms and foreign-funded joint ventures controlled by Chinese investors had also been invited to participate for the first time, the ministry has said. Six bidders are joint-venture companies, the Beijing paper said.

The ministry has drafted an industry standard to guide non-oil firms, and for companies that have made discoveries in these blocks it would expand the blocks without the firms having to go through another round of bidding, the paper said.

"It certainly means more opportunities for the service guys like Schlumberger and Weatherford, as these non-oil companies don't have their own expertise," said one official with a U.S. oil and gas company.

Industry officials said the non-oil companies, many backed by provincial governments eager for a share in a perceived shale boom, have offered to invest 10 times the minimum required by the tender.

"It's potentially a very risky move. Many of them have underestimated the difficulty of developing shale gas in China," said a second official with an international oil major.

China awarded two of the four blocks on offer in its first shale gas tender to China Petroleum & Chemical Corp (Sinopec) and a provincial coal seam gas company.

Despite the enthusiasm for the second tender, industry experts have cautioned that blocks offered at auction by the Ministry of Land and Resources are likely to be less prospective in reserves. The better blocks are already in the hands of top energy firms PetroChina and Sinopec Corp.