China
Petroleum & Chemical Corp., or Sinopec, said Friday the company is in talks
with BP
PLC to explore and develop shale gas resource in China, adding that it plans to bid
for six more shale gas blocks to step up its investment in cleaner-burning
fuels in the country.
During a conference call with analysts to discuss the company's third-quarter
results, Chief Financial Officer Wang Xinhua said the company's arm in eastern China already
owns 42 shale gas blocks with a total area of 190,000 square kilometers.
"We are now in talks with BP
on potential cooperation," he said, but didn't provide details.
China, which is heavily
dependent on imported oil and gas, hopes to replicate the success seen in the U.S. with their
own shale gas reserves.
So far China has focused on
inviting U.S.
and European companies into its tightly controlled onshore gas acreage in order
to gain technical knowhow.
Shale gas is trapped in relatively impermeable rock, and producers need to
crack the tight rock formations using streams of water and chemicals.
The Ministry of Land and Resources said Wednesday China plans to auction six
shale gas blocks within a month to the country's biggest energy companies,
including Sinopec, PetroChina Co., Cnooc Ltd., and Shaanxi Yanchang Petroleum
Group.
The auction will involve three blocks in Guizhou
province, one in Chongqing municipality, one in Shanxi province, and one along the border between Anhui and Zhejiang
provinces. The six blocks are each spread over 6,000-7,000 sq km.
Sinopec imports 70% of its crude oil needs and is therefore more sensitive to a
mismatch between domestic and international fuel prices than domestic peers
like PetroChina.
In the January-September period, operating profit from Sinopec's refining
business fell 61% to CNY8.49 billion due to rising fuel costs and government
controls on fuel product prices, despite a rise of more than 14% in crude
processing volumes.
Wang said the company is optimistic on its fourth-quarter performance following
a fuel price increase earlier this week.
"We expect the fourth quarter will be a relatively good one for us based
on expectations of stable economic growth and demand for our products," he
said.
Analysts said they expect Sinopec's refining margins to improve in the fourth
quarter.
"We estimate this (price hike) could lift the company's refining margin
from an average of $5 a barrel to $8 in November given the low-cost inventory on
a 50-day time delay," said Shi Yan, an analyst at UOB KayHian. "This
should boost its fourth-quarter earnings significantly."
Earlier this week, China
raised domestic ex-factory gasoline, diesel and jet fuel prices by 3% to 4% due
to higher crude oil prices.
Fourteen analysts polled by Thomson Reuters said they expect Sinopec's 2010 net
profit to rise to an average of CNY 66.32 billion from CNY 61.8 billion last
year.