Great wells of China: oil hunt to begin as foreign firms bid for offshore drilling

One of the last major untapped sources of oil on this planet is expected to be explored later this year off the coast of China. Some early estimates likened these waters to a second Middle East, but the potential, while still thought to be considerable, is perhaps about half of Britain's North Sea production, or a million barrels a day. Estimates on possible reserves vary from 30 billion to 100 billion barrels, both onshore and offshore.

If sizable wells are pumping by the end of the decade, the oil and any money gained from exporting it could help China meet its goal of ''modernization'' by the 21st century.

Thirty-three companies - half of them American - have submitted bids on 102 offshore tracts thought to contain oil. Intensive talks on contracts to allow exploration are under way. China hopes to get at least some contracts signed in time to start drilling by the end of 1983.

After evaluating the bids, the Chinese have invited some of the major contenders back for detailed talks hopefully leading to contracts. The Chinese are believed to be anxious to get a few major contracts signed which can then serve as models for the others. Mobil, Exxon, British Petroleum, Occidental, and Amoco are among the companies that have been or will be engaged in these talks.

Huge sums of money are involved. One industry source suggests the total investment in tract bids for May come to $20 billion, half of which would come from China, the other half from its Western partners. If half the Western stake comes from American companies, that means the American share would be something like $5 billion. But no one actually knows how much investment will ultimately be needed. Until drilling starts in earnest, no one can be certain how much oil will be discovered.

Atlantic Richfield, which began negotiating with the Chinese three years ago, signed a contract last fall and has been drilling in the Yingge Basin off Hainan Island since December. Industry sources say the drilling has been proceeding smoothly and has reached a depth of 10,000 meters.

Western oil companies have conducted their talks with the China National Offshore Oil Corporation, which is under the Petroleum Ministry. The contracts the Chinese want will call for 100 percent of oil exploration costs to be borne by the Western partner. Investment in production will be on a 51-49 percent basis, with the Chinese holding the majority stake. After exploration and other costs have been deducted, the Chinese will share the oil produced according to a formula varying with the size of the field.

Industry sources expect an investment of $100 million to $150 million per tract, depending on the geological structure. In an interview with visiting foreign journalists, the administrator of Hainan Island said that Atlantic Richfield had already invested $170 million in its tract and was planning to put in another $250 million.

A French company, Elf-Acquitaine, is exploring in the Bohai Gulf, as is the Japan National Oil Corporation. Another French company, Total, is in the Tonkin Gulf.

These projects are separate from the tracts offered to the 33 (32 since Occidental acquired Cities Service) Western companies. Both the French and Japanese ventures involve partnerships with governmental or semi-governmental agencies. The Japanese have been the only ones to have struck a commercial-size oil deposit offshore and have raised their investment to $600 million from the $ 210 million originally allocated.

The Chinese realize that to obtain as rapid a development as possible of offshore oil, they will have to rely on private investment, particularly on American investment, since it is the American companies that have the greatest experience in offshore drilling.

Onshore oil is a different story. Here China has so far relied almost entirely on its own means. It has hired Western companies such as Parker Drilling and Geosource, both of Texas, as contractors, but has given no Western company production rights. China recently negotiated $262 million in loans from the World Bank to improve onshore exploration and extraction technology. Onshore oil production reached a plateau of 100 million tons per year (approximately 2 million barrels per day) at the end of the 1970s and has not increased significantly since then. The Chinese are hoping to maintain this level until the late 1980s and early 1990s, when offshore oil will begin to come on stream.

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