China National Petroleum Corp (CNPC), the nation's largest oil producer, yesterday established an offshore oil engineering subsidiary, a fresh move to help it boost the exploitation of oil in China's waters.

The new subsidiary, China National Petroleum Offshore Engineering Co Ltd (CNPOEC), could also expedite CNPC's overseas expansion by helping it tap into offshore reserves in foreign countries.

CNPC yesterday created the engineering company by consolidating the drilling, construction, engineering assets and design institutions of its two subsidiaries - Liaohe Oil Exploration Bureau and Dagang Petroleum Group.

The engineering firm will mainly conduct offshore well-drilling, engineering, design and maintenance of offshore oil production platforms.

CNPC hopes the setting-up of the engineering company can better serve its offshore oil exploitation. The new business may help CNPC raise its production.

Traditionally, CNPC explores and develops oil on land and in shallow waters no deeper than five meters. China National Offshore Oil Corp, the nation's third largest oil producer, dominates offshore oil production.

But earlier this year, PetroChina, CNPC's subsidiary, clinched its first license to search for oil in the South China Sea.

The government hopes the move will promote oil exploitation offshore, helping increase domestic oil supply.

At present, CNPC produces about 1 million tons of oil in shallow waters in Bohai Bay, less than 1 per cent of its total production.

With more effort pouring into offshore exploration, CNPC plans to pump out 4 million tons of crude in Chinese waters by 2010.

"The set-up of CNPOEC is a strategical step for CNPC to speed up offshore oil exploration," said Liu Haisheng, chairman of CNPOEC, yesterday at the launching ceremony.

The company has already made "surprisingly encouraging" discoveries in Liaohe, Dagang and Jidong in the Bohai Bay area recently.

Shi Lin, general manager of CNPOEC, said the launch of his company is also significant for CNPC anchor in its drive for overseas expansion.

CNPC is negotiating to tap offshore oil in foreign countries. And the potential reserves could be "much larger" than CNPC's domestic offshore oil production, Shi says.

The establishment of CNPOEC, however, may threaten the dominance of Hong Kong-listed CNOOC Engineering in the offshore oil engineering service business in China. CNOOC Engineering now carries on most of the engineering service work of its parent China National Offshore Oil Corp, the nation's largest offshore oil producer.

But Shi said there was enough market for both companies.

"It is not a problem of competition, but a problem of too large a market," said Shi. "We cannot finish our current work for at least the next three or five years."

Compared to onshore exploration, China's offshore oil has been less exploited. More than 80 percent of offshore oil reserves has not been identified yet.

China's offshore oil production reached 27 million tons last year, representing about 15 percent of total production. Most of the oil was produced by China National Offshore Oil Corp and its foreign partners.

(China Daily November 4, 2004)