As the fourth-largest state-owned oil company in China, Sinochem has long been looking to expand its presence in the unconventional oil and gas sector. Now, that moment has finally arrived. According to a report from yesterday, Sinochem has signed an agreement with Pioneer Natural Resources Company to acquire a 40% stake in a shale oil and gas block located in the southern part of the Midland sub-basin in Texas, USA.
This marks Sinochem’s first foray into the U.S. upstream oil and gas market and represents its very first unconventional oil and gas project. The deal, finalized on January 30, involves the purchase of approximately 82,800 acres of land, granting Sinochem development rights over the Wolfcamp shale formation and deeper reservoirs. The company will pay $1.7 billion in total, including $500 million in cash, and is also expected to contribute up to $1.2 billion toward drilling and completion costs in the joint venture area over the next few years.
Zeng Xingqiu, former chief geologist at Sinochem Group, emphasized the significance of the move, stating that this project would allow the company to gain valuable experience in unconventional resource development while entering the U.S. market. He noted that while the project is rich in resources, it comes with a long development cycle and limited short-term profitability.
Sinochem Group expects the transaction to be approved by relevant authorities and anticipates the deal to be completed in the second quarter of 2013. Pioneer will act as the operator, handling all aspects of land leasing, drilling, production, and sales within the cooperation area.
Zhang Wei, vice president of Sinochem Group, expressed confidence in the investment, saying the acquisition would help optimize their overseas portfolio and strengthen future collaboration with Pioneer. He added that the area already has more than 400 horizontal wells drilled and over 35 active drilling rigs, indicating strong potential for future growth.
Despite the optimism, Sinochem’s previous international ventures have not always been smooth. A 2011 audit revealed that only two out of six overseas projects were profitable, with some falling short of financial targets. However, a spokesperson for Sinochem later clarified that, overall, the company's overseas oil and gas projects remain profitable.
With this new venture, Sinochem aims to build expertise in unconventional energy and position itself for long-term success in the global energy landscape.
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