Sinopec, China’s largest shale gas producer, is setting up a joint venture with local entities in the southwestern Sichuan province to develop newly discovered shale gas reserves at the Weirong block — a tract where production has only started in recent weeks.

According to the Sichuan Development & Reform Commission, a local economic decision maker, Sinopec will take a majority stake of 70% in the 3.2 billion yuan ($492 million) joint venture, Sinopec Sichuan Shale Gas Exploration & Development Company.

The remaining stakes will be held by Neijiang Investment Holdings with 15% and Zigong State-owned Investment & Operating Group with the remaining 15%.

These are the two local companies in Neijiang and Zigong, respectively, where Weirong is located.

In a joint venture contract soon to be signed, Sinopec is obliged to sell 6% of the shale gas throughput to local Sichuan users at a price 0.1 yuan per cubic metre lower than the government-set city gate price.

Newly onstream

The Weirong shale gas block is located in Neijiang and Zigong cities, with proven shale gas reserves of 124.7 billion cubic metres at an average reservoir depth of 3750 metres.

Sinopec readhed first gas at Weirong last month. The field has an annual shale gas production capacity of 1 billion cubic metres, with current daily production of 3.5 million cubic metres.

Tapping shale gas reserves in reservoirs beyond 3500 metres has been a high priority for Chinese oil and gas companies in the past three years due to technological advancements.

Current production facilities include eight drilling pads accommodating 56 wells, plus export pipelines to local residential areas.

Plans call for production to be increased to 2 Bcm by the end of this year and to 3 Bcm next year.

The field's discovery well, Dongyesheng-1, tapped reservoirs as deep as 4200 metres and flowed 310,000 cmd of shale gas in March 2019.

Two other wells — Dingye-4 and Dingye-5 — flowed 200,000 and 160,000 cmd, respectively.

Mixed ownership model

This is the first joint venture Sinopec will establish with local government in order to promote what the central government has called the mixed ownership of oil and gas assets to encourage more investment to develop oil and gas from diverse businesses.

Under the mixed ownership, oil and gas companies including Sinopec and PetroChina controlled by the central government will have easy access to land for building energy infrastructures such as pipelines and gas gathering centres.

Shale

Sinopec takes aim at joint venture to develop new shale gas find in China