Arco putting a big stake in Chinese gas field

After seven years of negotiation and exploration, Atlantic Richfield signed two contracts Saturday that allow the Los Angeles-based oil major to develop Yacheng 13-1, the largest natural gas field found so far in the South China Sea. The agreements represent the first major US energy production effort in the waters off China's east coast, and the biggest energy investment in China. Other signatories of the contracts were Santa Fe Minerals Inc., a subsidiary of Kuwait National Oil Company, and the China National Offshore Oil Corporation (CNOOC).

Arco China Inc., a subsidiary of Arco International Oil and Gas, retains a 34 percent interest in the development, while Santa Fe has 15 percent. CNOOC holds the remaining 51 percent share.

Arco China will build a drilling and production platform in the Yacheng 13-1 field. Arco will also construct a pipeline from the platform to Hainan Island. Arco officials expect production to begin in mid-1989 and expect it to build up to a rate of 350 million cubic feet per day by 1992.

Arco will train more than 100 Chinese workers at the site and in the United States. About 100 Americans will also be employed at the platform in the drilling phase. Arco expects to drill 15 wells from the platform.

The gas field, 65 miles south of Hainan Island and some 40 miles away from the territorial waters of Vietnam, was discovered in August 1983.

It covers about 20 square miles and has gas reserves equivalent to 500 million barrels of oil, according to Arco. In that area the water is 300 feet deep, but the gas lies at some 13,000 feet below the surface of the sea floor. The development should help pump interest into development of China's offshore oil reserves.

During the past three years major US oil companies drilling in areas of the Pearl River Basin and east China have not found much crude. Twenty-three companies, arranged in nine consortia, are competing for three blocks next to areas where small finds have been made.

The Arco agreements were signed as China desperately seeks to secure more sources of energy to fuel its industrialization. Power outages in Canton, for example, often force factories to shut down for days at a time.

In a banquet speech at the Great Hall of the People here on Saturday night, Arco chairman Robert O. Anderson told several hundred Chinese guests that Yacheng 13-1 ``could add as much as 40 percent or 50 percent to the amount of natural gas available to your great country.'' Mr. Anderson said Arco will be looking into onshore oil exploration as well.

Government officials here say gas from the South China Sea may be used to profide power in Guangdong, Fujian, and Guangxi Provinces. In addition, some of the gas may be sold to Hong Kong.

Almost $1 billion will be spent on the project. Since 1978, Arco has invested $180 million in oil and gas exploration off the coast of China, according to Anderson. The company estimates that its investment in the drilling and production platform and the pipeline to Hainan Island will total $250 million.

The Chinese side may spend more than $650 million to construct a 36-inch-diameter gas line from Hainan to the mainland and other onshore production facilities.

Arco says it will finance its portion of the project internally. World Bank funds may be made available to China to cover its costs, according to banking sources here. Industry sources estimate that the value of the Yacheng gas over the life of Arco's 20-year contract could total $5 billion. Neither Arco nor the Chinese will disclose the wellhead cost per cubic foot, although Anderson described it as ``at international gas price levels.''