China National Offshore Oil Corp (中國海洋石油), China's third-largest oil company, said it will sign an agreement next week with Taiwan's Chinese Petroleum Corp (中油) to explore for oil in waters that separate the nation from China.
The two state-controlled companies received government approval to form a venture to find oil and gas in the Taiwan Strait between China's southeastern Fujian province and western Taiwan. China National said a delegation will travel to Taipei to sign the agreement. Officials at Chinese Petroleum wouldn't confirm the visit.
"This cooperation may be the first of more to come, since both sides have many common areas of interest," said Yang Chunbao, an official with China National's external affairs unit.
The two companies may extend their oil exploration to other countries as Taiwan and China grow more reliant on imported oil, Yang said.
The venture signals more cooperation between businesses in Taiwan and China, even as political relations between the two remain unsteady.
Still, the cooperation may not be as fast as hoped, Chinese Petroleum spokesman Liao Tsang-long said.
"There are some technicalities, such as the wording of the agreement, which still need to be sorted out," Liao said. "Signing the agreement before the Chinese New Year may not be possible."
This year Chinese New Year falls on Feb. 12.
Taiwanese companies, such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電), are pressuring the government to lift restrictions on investing in the mainland to allow them to tap lower-cost land and labor and a consumer market that's among the world's largest.
"Energy has always been a sensitive industry to cooperate on since it's so closely-linked to security issues," said Howard Wong, an analyst with Morgan Stanley Dean Witter in Hong Kong.
"So if two state-owned energy companies decide to work together, this suggests an increase of trust" between China and Taiwan.
Taiwan, which requires energy for half its energy needs, relies on imports from the Middle East and West Africa for most of its crude oil needs. The nation produces just 1,000 barrels of oil a day, about 0.1 percent of its consumption.
China imports about 30 percent of the oil it needs. Oil demand in the world's third-largest oil consumer is expected to increase an annual 4 percent over the next four years to a daily 5 million barrels, the State Economic Trade Commission said.
China National said "not much money" will be spent setting up the venture. The two companies plan to drill some exploration wells in Tainan Basin, which will cost "a few million dollars each," Yang said.
The two companies will jointly operate the 6,000-square-mile exploration area, that spans Taiwan and Chinese territorial waters.
"For years, both sides have conducted seismic research on the area," China National's Yang said. "It has good potential for oil and gas discoveries." China National will transfer the project to its Hong Kong-listed unit CNOOC Ltd once the agreement is signed.
The venture between China National and Chinese Petroleum may lead to further cooperation between Taiwan and larger Chinese oil companies, such as PetroChina Co and China Petroleum & Chemical Corp, Morgan Stanley's Wong said.
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