China has altered its shale gas licensing regime to allow companies with 100% foreign investment or with foreign companies controlling the majority stakes to participate in the national auction.

Two weeks ago, upstream watchdog the Ministry of Natural Resources (MNR), via its local outfit Guizhou Natural Resources Administration, launched a new shale gas licensing round, offering six blocks in southwestern China’s Guizhou province, with no restriction to foreign companies for participation.

The new offer, covering 696 square kilometres, confirms an Upstream report on 27 October that China was set to launch the bid exercise.

An MNR official had earlier told Upstream that three more blocks will be offered in Hunan province to investors early next year.

The smallest block on offer is Wuchuandaping, covering 56.8 square kilometres, while the biggest is Zhenanzhongguan, covering 159.2 square kilometres.

Other incentives in the new licensing round include the extension of the exploration period from three to five years, with an option of another five-year extension to allow explorers more time to tap shale prospects in the province where little exploration has so far been undertaken.

According to the Guizhou auction rules, bidders must be entities registered in China with net assets totalling at least 300 million yuan ($43 million), although minority stakes can be held by foreign companies.

This auction is part of the government's plan to reform the upstream sector by encouraging diverse ownership of China's hydrocarbon resources.

In 2013 and 2014, the MNR launched two nationwide shale gas auctions covering 21 blocks that attracted 17 independent companies.

Most of the companies have relinquished the blocks to the MNR after failing either to meet the work commitments or to make any commercial discoveries.

Potential muted interest

Industry officials said that the fresh offers are unlikely to garner new interest from foreign companies to return to China’s shale sector, especially at a time when the low oil price and Covid-19 pandemic are forcing oil and gas players to cut budgets for developing unconventional resources.

Foreign companies have in general not found China a happy hunting ground when it comes to unconventional exploration.

At least 10 foreign companies have exited China’s unconventional gas exploration and development sector, mainly citing reasons of complex geology and reserves too small to justify development.

Last April, UK supermajor BP decided to pull the plug on its shale gas operations at the Neijiang-Dazu and Rongchangbei blocks in Sichuan province, highlighting the difficulties overseas players have had in making profitable investments in the sector.

BP had invested 1 billion yuan to drill 10 wells on the blocks, with three showing the presence of shale gas — one of which flowed 160,000 cubic metres per day under tests.

Other international industry heavyweights that have exited shale gas exploration in China include Shell, ExxonMobil, Eni, Hess, Petronas, Chevron, Newfield, Total and ConocoPhillips.

Shell walked out from the Fushun block in Sichuan a few years ago after completing phase one drilling.

Shale

China sweetens shale gas regime to allow foreign player entry