OREANDA-NEWS. August 06, 2013. Some progress has been made in most of the shale gas blocks that were awarded in China's second shale bidding round early this year, with a few wells likely to be drilled soon, the Ministry of Land and Resources said.

The bid round was held in Q4 last year, with the results announced in January. The ministry awarded 19 blocks to 16 domestic companies, none of which had any oil and gas experience. Coal and power companies won eight blocks, while the rest were awarded to investment companies set up by local governments.

In a report on its website, MLR said most of the companies had completed 2D seismic acquisition and were at the tender phase for drilling work.

More than 620 kilometers (385 miles) of 2D seismic has been acquired at five blocks and 30 exploration wells have been identified, two of which are expected to be drilled soon, the ministry said.

"A large number of enterprises have a much better geological understanding of the blocks, and have chosen more advanced technology ... The bulk of them have completed the design of the three-year exploration work plan, as well as annual work plans," MLR said, adding geological surveys have been completed at some blocks and are ongoing at others.

However the ministry said the companies have faced a number of challenges, including a lack of skilled and technical personnel, insufficient technological expertize and limited financial resources. The blocks are also geologically complex, making initial surveys difficult.

In addition, some of the companies have not lived up to initial promises regarding work commitments and have failed to make their investments in the blocks a priority, the ministry said.

To tackle these problems, MLR said it was working to strengthen communication and dialogue with the operators to encourage timely progress updates and exchange of information. It will also step up inspections and work with local governments at the acreage involved to promote more conducive work environments.

The MLR offered 20 blocks spanning 20,239 square km (7,814 sq miles) across eight provinces and cities. Foreign firms were not permitted to participate in the bid round, although the winning companies are free to bring in both local and foreign partners.

Sources at a few foreign independent companies involved in China's unconventional gas sector say they have been approached to farm into the shale blocks, but deemed the risks too great. No foreign tie-ups have been announced to date.

\\$2 BILLION INVESTMENT FORECAST IN FIRST THREE YEARS

MLR said in January that total investment in all 19 blocks was expected to be Yuan 12.8 billion (\\$2.06 billion) within the first three years of exploration.

Chinese state-owned companies PetroChina and China Petroleum & Chemical Corp., or Sinopec, are already working with a handful of international oil companies on some shale gas blocks under joint study agreements. Shell signed China's first shale gas production sharing contract, for the Fushun-Yongchuan block in central Sichuan province, with PetroChina last year.

In the first shale gas round held in June 2011, MLR invited just six companies -- PetroChina, China National Offshore Oil Corp., Sinopec, Shaanxi Yanchang Petroleum, China United Coal Bed Methane and Henan Provincial Coal Seam Gas Development & Utilization -- to participate.

Only two blocks were awarded as the other two on offer failed to receive the minimum number of bids. Sinopec won the Nanchuan block in Guizhou, while Henan Provincial was awarded the Xiushan block near Chongqing city.

In November last year, the Ministry of Finance announced a subsidy of Yuan 0.40/cubic meter (6 cents/cu m) for shale gas production to producers in China over 2012-2015 in a bid to promote exploration and production.

However besides technological and geological challenges, China's shale gas sector also faces a shortage of pipeline and other gas processing infrastructure.

Analysts have said China is not likely to meet its official target of producing 6.5 billion cu m/year (628,600 Mcf/day) of shale gas by 2015.

Separately, Sinopec Monday said it had sold 10.2 million cu m of gas from the Jiaoye-1 well in its Fuling shale gas block over January 1-July 25. The gas was sold to the transport sector to be utilized in gas-fueled vehicles.

The block, in Sichuan province, is operated by Sinopec subsidiary Chongqing Petroleum Co. Sinopec had said in March it was targeting 1 billion cu m/year of production from Fuling by 2015.