BP latest oil major to exit China's shale gas after poor drilling results

By Meng Meng and Chen Aizhu

SHANGHAI/SINGAPORE, April 11 (Reuters) - European oil majorBP plans to exit from two production sharing contracts(PSC) for projects drilling for shale gas in the southwesternChinese province of Sichuan, three sources with the knowledge ofthe matter said this week.

BP is the last of the international oil majors, includingRoyal Dutch Shell, Exxon Mobil, ConocoPhillipsand ENI, to quit exploring for shale gas inChina because of poor drilling results. Its departure leaves thesector firmly in the hands of domestic companies.

In March 2016, BP agreed with China National Petroleum Corp(CNPC) to explore and produce natural gas from shale rockformations in the Neijiang-Dazu block in Sichuan, its first suchcontract in China.

It inked a second PSC on the Rongchangbei block later in2016. CNPC was the operator in both deals.

BP no longer wants to proceed with the Sichuan projectsafter drilling eight to 10 wells with disappointing results, twoof the three sources said.

One of the wells, the Wei 206-H1 that was drilled to a depthof 4,368 metres (14,300 feet) in the Neijiang-Dazu block,produced about 10,000 cubic metres a day of gas during testproduction, a fraction of the output from a typical CNPC shalegas well in the same geological zone, IHS Markit said in aresearch note.

China is only just beginning to develop its vast shale gasresources with production last year making up only 6 percent oftotal natural gas output, because of geology that makes gasextraction difficult and a challenging operating environment.

With BP and the other oil majors gone, PetroChina Co, CNPC's listed arm, and Sinopec Corp arelikely to dominate China's shale gas sector using low-costtechnology and services developed domestically.

BP's Chief Executive Officer Bob Dudley said last week at aconference in Shanghai that the Sichuan projects faced "greatchallenges" because of its complex geology.

To overcome those problems, BP used technology from itsshale developments in the United States at the Sichuan site,Chinese business news portal The Paper reported.

BP did not immediately respond to request for comment.PetroChina declined to comment.

Zhu Kunfeng, a Beijing-based associate director of upstreamresearch with IHS Markit, said poor economics are the key reasonholding BP back from pursuing further in Sichuan.

"As the last trial for IOCs on China's shale gas, BP'sdecision will impact foreign firms' confidence in China's shalegas sector," Zhu said.($1 = 6.7123 Chinese yuan renminbi)(Reporting by Chen Aizhu in SINGAPORE and Meng Meng inSHANGHAI; editing by Christian Schmollinger)