State oil companies China National Offshore Oil Corp. (CNOOC) and Taiwan’s CPC Corp. plan to drill a well in deep waters off the island’s southwest coast, at a block in the Taiwan Strait they are jointly developing under a production sharing contract (PSC).

The two NOCs renewed the PSC for the Taichao Block for another two years in December 2014 after seeing promising signs of sizeable oil and gas reserves in central zones of the block, Zheng Yongfeng, director of CPC’s marine department, confirmed to Interfax.

"We had almost given up drilling in the northern and southern part of the block. We have drilled wells in these two areas, but only a little gas came out, which was not worth the cost we invested," said Zheng.

"However, the middle part of the block is quite new and the geomorphological structure looks similar to those that have produced plenty of oil and gas. So we decided to give it a try."

The two companies initially agreed on a four-year PSC for the 1.55 million hectare Taichao Block in 2002, and have since renewed the contract three times.

Tainan-Chaoshan Petroleum Operating – a 50/50 joint venture between CNOOC and CPC incorporated in February 2003 – drilled a first exploration well in Taichao in September 2003 and a second in September 2009, but both proved fruitless.

During exploration, however, a rough survey of the block’s central area was performed and the JV found indications it might hold more gas than the north and south zones.

The JV held a tender for the provision of 3D seismic acquisition and processing for the central area in March 2014. The tender was open to both Chinese and foreign companies, but a Chinese company submitted the lowest-cost bid and won, said Zheng.

A source in the JV told Interfax Beijing Tian’an Xingda Oil Technology won the tender. Little is known about Tian’an Xingda and the company declined to comment when contacted by Interfax. The results of the 3D seismic are expected to be available by the middle of this year.

Zheng added that the JV is likely to tender out drilling of the well once the depth of any potential resources has been determined. He played down Chinese media reports on Thursday that Haiyang Shiyou 981, CNOOC’s flagship mobile drilling platform, could be used.

"CNOOC’s 981 drilling rig is quite expensive and we are not sure if it will be available by that time. Plus, if the waters are only 800 metres deep, we do not see any need to use the 981 drilling rig," said Zheng. Day rates for rigs similar to the 981, which was built at a cost of close to $1 billion, can range from $500,000 to $600,000.

China’s Maritime Safety Administration said on 1 January that the 981 rig had left harbour in Sanya on the southern coast of Hainan province on its way to Singapore. Chinese media reported it was bound for the Indian Ocean for an unspecified overseas assignment.

The 981 rig was at the centre of a tense standoff between Chinese and Vietnamese fleets last summer, after it drilled two wells in South China Sea waters claimed by Vietnam. Chinese insiders have said the rig is likely to return to the area this summer, potentially stirring tensions with Hanoi again.

Bridging the Strait

China and Taiwan – rivals since the end of the Chinese civil war in 1949 – have so far signed and discussed three contracts for the Taichao, Taiyang and Nanjihtao basins, CNOOC Vice President Wang Jiaxiang said at a conference in Taiwan’s capital of Taipei in December.

"There will be more communication between Taiwan and China in the future, with areas for collaboration extending from upstream exploration activity in the Taiwan Strait to exploration activities abroad, LNG procurement and technology collaboration and so on," Wang said at the Cross-Strait CEO Summit.

Wang added that the two companies have provisionally agreed to invite France’s Total to join the collaboration on the Taiyang project. But Zheng said it will be a while longer before the deal is concluded because it requires the approval of the Chinese and Taiwanese governments.

The Taichao Block PSC was the first petroleum contract signed between China and Taiwan, and is seen as a breakthrough for collaboration between Beijing and Taipei in the South China Sea. China lays claim to virtually the entire sea and is involved in territorial spats with other claimants, including Vietnam and the Philippines. Taiwan also claims part of the sea.