Shell, PetroChina Achieve Low-Cost Changbei Gas Output

(Corrects to remove 91 percent discount in first paragraph; corrects lifting costs to Shell’s direct unit operating cost and removes erroneous comparison to PetroChina lifting costs in second paragraph; Shell corrects signing of agreement to 1999 in paragraph eight; corrects size of Changbei field in same paragraph.)

Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, said it’s achieving low direct unit operating costs at the Changbei natural gas field that it’s developing with PetroChina Co. (857)

Shell’s direct unit operating costs, which it defines as excluding capital investment and other indirect operational costs, is about $1 per barrel of oil equivalent, or lower than similar projects, said Xu Li, Shell’s general manager of the field. He spoke to reporters at the unit’s headquarters on the outskirts of Yulin on Nov. 19.

Shell is spending $1 billion in China this year and is stepping up its investment in the nation’s unconventional natural gas sector. China, the world’s largest energy consumer, is seeking to lower its reliance on coal and replace it with cleaner sources, such as gas.

“We have started to drill more test wells in the second phase of development in the Changbei project, and we expect the second phase to bring a significant amount of output,” in addition to the first phase, Xu said. All output from Changbei is sold to Beijing.

Shell, the operator of the project, will drill more wells at different depths in the second phase. Test production from the second phase could start in late 2014 or early 2015 based on test results and government approvals, Xu said.

Capital Spending

The first phase of Changbei, which started output in 2007, has annual production capacity of 3.3 billion cubic meters of natural gas. That’s equal to 2.97 million barrels of oil equivalent based on BP Plc’s gas to oil conversion chart.

The field is a production-sharing venture between Shell and PetroChina, both of which have refused to provide details of the project stating the need to protect business secrets.

Shell and PetroChina signed the production-sharing agreement in 1999 and it was amended in 2005 and 2012. The Changbei project covers an area of 1,693 square kilometers (654 square miles) in northwest China’s Shaanxi Province and Inner Mongolia Autonomous Region, according to Shell.

Shell “is investing $1 billion” in China on capital expenditure in 2013, Li Lusha, Shell’s head of media relations on China and North Asia, said in the same interview. Most of the spending went to Shell’s shale gas exploration in Sichuan, and the rest went to other projects including the Changbei project, she said.

Shell and China National Petroleum Corp., Petrochina’s state-owned parent, signed a product-sharing agreement in 2012 to explore and produce shale gas in an area covering about 3,500 square kilometers in southwest China’s Sichuan Province.

Shell is China’s biggest liquefied natural gas supplier, importing around 5 million tons of the fuel to China a year since 2010, according to the company’s website.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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