As elucidated by China National Petroleum Corporation, its subsidiary PetroChina Company Limited (PTR) along with Royal Dutch Shell PLC (RDS.B) have started to drill the first evaluation well in a shale gas block in China. This joint exploration agreement was announced and signed in November 2009.
Located in the Sichuan province of southwestern China, the well is drilled at the Fushun block spreading across approximately 4K square kilometers. Assessment work on the block started in January 2010.
This happens to be the first joint shale gas development project signed by the two companies with an intention to explore the untapped resources in China.
China lags the U.S. in terms of development of shale gas, which is a foremost contributor to future energy mix. The project is expected to assess China’s shale gas potential and capture the unconventional source of cleaner-burning fuel to meet that country’s increasing demand for fuel.
China targets to reach an annual production capacity of 15 billion to 30 billion cubic meters of shale gas by 2020. We believe that expansion and development of shale gas resources in the Sichuan basin will likely mitigate the low gas supplies in China.
This is not the first time when PetroChina and Shell jointly landed on a gas development project in China. They also share a deal at Changbei natural gas field in the Shaanxi province of China.
This venture has paved the path for PetroChina to take up other natural gas business opportunities, which present a strong growth avenue in the coming years as China transits from coal to natural gas. We believe that the company is well positioned to capitalize on this favorable trend.
On the other hand, Shell continues to make investments in various projects and strengthen its portfolio of global energy businesses, offering long-term growth visibility.
Both PetroChina and Shell retain a Zacks #3 Rank, which translates into a short-term Hold recommendation.
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