China's top offshore oil and gas producer has reached an advanced stage in developing its first deep-sea vessel, inking a manufacturing deal with an overseas subcontractor.

China National Offshore Oil Corporation, or CNOOC, has signed a US$13 million contract with Aker Kvaerner ASA, a Norwegian engineering and offshore services company, for the delivery of an ultra-deepwater drilling rig, which is expected in early 2011.

"We expect the facility to meet our deep-sea drilling demand in either the South China Sea, Southeast Asia or Western Africa, or beyond. We can't say which area is the top priority right now. But the rig is designed to withstand the harshest natural conditions in the South China Sea," said a CNOOC source who did not want to be named.

The production of the rig is only part of CNOOC's ambitious plan to march into deep sea for oil. "A deep-sea drilling lab, pipe-laying vessels and deep-sea drilling platforms are our next targets," the CNOOC insider said.

Liu Junshan, spokesman for Beijing-based CNOOC, had earlier told China Daily that the company would invest 10 billion yuan over the next three years to boost deep-sea exploration. The investment will fund the building of a deep-sea drilling vessel and other auxiliary equipment, which will enhance the company's capability and eliminate the high cost of renting such gear.

Building its own drilling gear is more cost-efficient for CNOOC because of the shortage of such equipment internationally, said Zhao Zhiming, executive vice-president of the China Petroleum and Petrochemical Equipment Industry Association. "Building a deep-sea vessel costs only half or two-thirds that of leasing one."

But more than that, deep-sea drilling equipment is difficult to find because of the rising demand for deep-sea exploration.

"With the current high oil prices, there are enough incentives for oil companies across the globe to explore deep-sea oil and gas despite the higher cost of such ventures," Zhao pointed out.

CNOOC will adopt a step-by-step approach to achieving deep-sea drilling capability though it has set bold targets in this area, the company source said.

The drilling vessel to be built by Aker Kvaerner ASA is jointly designed by CNOOC and F&G Company of the US, capable of operating at 3,000 meters under water and drilling up to 10,000 meters under the sea bed. CNOOC will own the intellectual property right of the vessel.

"With the IPR, we can develop our own deep-sea drilling facilities in future," the CNOOC insider said.

Deep-sea exploration is a potential growth engine for CNOOC, and the South China Sea is a possible area for future development, spokesman Liu said.

CNOOC holds deepwater exploration contracts off China's southern coast with Husky Energy Inc and Kerr-McGee Corp. In June, the two discovered a deepwater gas field in the Pearl River Delta that may prove to be the country's largest offshore gas deposit, according to Bloomberg.

(China Daily August 21, 2007)