China looks abroad for shale technology
Chana's shale patch has so far been a richer opportunity for foreign oilfield service companies than for the supermajors that initially moved to snap up projects in the country.
The latest move into China from a foreign oilfield service company came this week when FTS International (FTSI), a Texas-based shale specialist, formed a 15-year joint venture with state-owned Sinopec. SinoFTS, as the venture will be known, will be 55% owned by Sinopec, while FTSI will hold the remaining 45%. No financial details of the deal were released. "The joint venture collaboration is the culmination of a multi-year effort by both companies to bring FTSI's hydraulic stimulation capabilities and expertise to China," FTSI said in a statement.
FTSI got its start providing well simulation services such as multi-stage hydraulic fracturing, or fracking, in Texas' Barnet shale play in 2002, which put it at the leading edge of what has become a technological revolution for the industry. Since, the company is a leading provider of pressure pumping, wireline and pressure control and water management services to US shale players.
Those are all technologies that China is in desperate need of as it looks to spur its own shale development. "Just as FTSI was born out of the emergence of the U.S. unconventional energy industry, we expect that SinoFTS will enhance the development of China's domestic energy renaissance," the company's chief executive Greg Lanham said in a statement.
SinoFTS will initially focus on the Sichuan basin, where Sinopec has seen its first commercial shale development at the Fuling gasfield, when it starts work in 2015. It will then deploy FTSI's pressure pump units, a key piece of kit in shale development, to other basins around the country. The venture, FTSI said, could also provide services to other companies working in China.
The FTSI announcement came just a couple weeks after Sinopec's in-house oilfield services unit announced a deal with the US' Weatherford International to create a shale-focused joint venture. Like the FTSI deal, Sinopec is looking to Weatherford to bring its experience in the US' shale fields into China to help it crack the country's difficult shale geology.
Schlumberger, the world's largest oilfield services company, has focused its efforts in China's unconventional sector on a joint venture with local oilfield services play Anton Oil. Anton is seen by many analysts as the most capable of China's emerging crop of independent services companies, in no small part because of its partnership with Schlumberger. In 2012, Schlumberger bought a 20% stake in Anton and transferred some of its key unconventional drilling technologies into the company.
Other western service companies are also trying to find inroads into China's shale patch via local players. Halliburton has signed a cooperation deal with China's SPT Energy for projects in the Tarim basin in northwest China. The company has also signed a deal with Petro-King to provide horizontal drilling and fracking technology. Baker Hughes, meanwhile, has signed a deal with Sichuan-based Honghua to provide shale technology.
Those companies are positioning themselves to capitalise on what is expected to be a major boom in China's oilfield services market over he next decade, driven largely by the country's effort to develop its shale resources.
JP Morgan, an investment bank, expects the market to grow from around $20 billion in 2012 to $250 billion in 2020. It also expects the major state-owned upstream players Sinopec and China National Petroleum Corporation to loosen their grip on the sector, opening the door to new players. Sinopec's recent deals with FTSI and Weatherford, though, signal that it intends to continue building its own in-house technological capacity.
PetroChina said at a recent conference in Beijing that finding the right technology for shale development in China remain the biggest challenge to its efforts. Chinese companies will look to their foreign services partners to help them bring down wells costs, which are still around twice as expensive as in the US.
The clear momentum behind foreign oilfield service companies' efforts to capitalise on China's shale push contrasts with that of foreign supermajors. Companies such as Shell, Total, BP and Chevron rushed into the country from 2009-2011 to grab a foothold in the most promising shale basins, but most have seen slow progress, if any at all, at their projects.