China's largest offshore energy producer CNOOC Ltd. ( CEO ) has commenced its first domestic unconventional natural gas exploration venture following the footsteps of its rival China Petroleum & Chemical Corp. ( SNP ).

CNOOC initiated the exploration activities in the eastern Anhui province, on December 29, 2011. The project encompasses an area of 4,800 square kilometers.

Per the U.S. Energy Information Administration, Chinese shale is estimated to hold 1,275 trillion cubic feet of unconventional natural gas deposits, which is equivalent to 12 times the country's conventional natural gas deposits. The Agency also stated that China's technically recoverable reserves are almost in excess of 50% of the 862 trillion cubic feet held by the U.S.

Given the abundance of natural gas reserves, Chinese energy explorers have been in quest for shale technology and expertise. This has facilitated stake purchases in overseas field. In this context, it is noteworthy that since the beginning of 2010, CNOOC has bid for at least $16 billion of assets, including interests in Chesapeake Energy Corporation 's ( CHK ) Niobrara and Eagle Ford shale projects.

The partnership of Chinese companies with renowned international explorers will help them to convert their exploration into real production. CNOOC may take nearly 5 years to begin production.

In a separate announcement, CNOOC confirmed about a legal contest it is entangled in with the Chinese unit of ConocoPhillips ( COP ). The lawsuit is against the annoyed fishermen over the leakage in the Bohai Bay last year. CNOOC said that the claimants are asking for a compensation of $38 million, which comprises reimbursement for cultivation losses, valuation fees and litigation expenses.

Tianjin Maritime Court has requested the parent body of CNOOC to reply to the legal notice pertaining to the alleged leakage in the Penglai 19-3 oilfield.

CNOOC holds a Zacks # 1 Rank, which translates into a Strong Buy rating over the period of one to three months. Over the long term, we maintain our Neutral recommendation on the stock.