China’s National Offshore Oil Corporation (CNOOC) isn’t sitting pretty, if a recent stock filing with the SEC is to be believed. Beijing’s offshore drilling ambitions are CNOOC’s bailiwick, but while the state-owned firm plans to ramp up production by 20 percent next year, it isn’t finding new reserves to keep pace with the depletion of what it’s already drilling. The Interpreter reports:
Researchers have previously noted the significant long-term decline in CNOOC’s domestic offshore oil reserve life. Based on updated information presented in [a recent stock exchange] filing, and assuming CNOOC’s forecast production rates, the company may run down its reserve life to barely six years by 2015*. This compares to almost 15 years in 2001, and it is well below the 10 years normally considered comfortable for an ‘upstream’ oil exploration company.CNOOC has traditionally been Beijing’s offshore monopoly producer, so the condition of CNOOC is critical to China’s future energy strategy…[H]istorically, CNOOC has not replaced its stated reserves sufficiently quickly to offset its production increases. CNOOC has been investing heavily, but its prospects have disappointed. True, there may be more oil and gas that CNOOC is developing and is not yet visible. But even if HYSY-981 strikes oil in the South China Sea, it may take years to turn into a full-fledged production platform. Outsiders have little more than the SEC filing to judge what resource trajectory CNOOC really faces.
Of course, analysis based on China’s self-reported numbers is always subject to a high margin of error—Beijing is notorious for “fuzzy math” and outright opacity. But, from what we do know, CNOOC’s medium- and long-term future is looking fairly dim. As the Interpreter put it, “we can only glimpse an incomplete picture of China’s oil security, but the small window we have shows a rapidly depleting resource base.”Beijing’s aggression in the South China Sea certainly has a lot to do with regional posturing, but its offshore energy interests may be a more significant motive than many have previously thought, especially given this recent CNOOC filing. The EIA estimates that the South China Sea contains some 11 billion barrels of oil (though Chinese estimates peg it at more than 10 times that level). Most of this crude lies in uncontested waters, but China hasn’t shied away from deploying rigs into the region, in waters contested or otherwise.Stay tuned—there’s a lot at stake in Asia’s Game of Thrones.