CNOOC Ltd, China's largest offshore oil producer, has signed a deal to spend 9.93 billion yuan ($1.56 billion) to explore for coalbed methane (CBM) in the mainland over the next five years as part of a 30-year agreement.

A deal on the project was signed between CNOOC Ltd and China United Coalbed Methane Corporation Ltd, which is half owned by CNOOC Ltd's parent, China National Offshore Oil Corporation (CNOOC Group), and half owned by China National Coal Group Corp, CNOOC said in a filing with the Hong Kong bourse.

The two firms aim to explore, develop and produce methane gas in China for 30 years, CNOOC said.

China is investing 100 billion yuan to double coalbed methane output by 2015. Beijing wants gas output from coal seams of up to 30 billion cubic metres (bcm) by 2020, which would account for 15 percent of China's total gas production, up from 5 percent last year.

Beijing plans to double the share of natural gas in its energy mix by 2015 and reduce the role of coal in a bid to ease pollution and slow greenhouse gas emissions. China will import more gas, but it also aims to boost output from domestic natural gas fields as well as develop unconventional sources of gas.

CNOOC Ltd said the deal with China United would give it an opportunity to develop its clean energy business and work onshore in China.

Under the agreement, exploration would cover a 10,866 sq km (4,195 sq miles) area in Shanxi, Shaanxi, Anhui, Shandong, Yunnan, Ningxia, Hebei, Hubei and Henan provinces, CNOOC said.

Future coalbed methane production from the project would be shared between CNOOC Ltd and China United.

In general, CNOOC Ltd will take up to 70 percent of future development and production costs of a coalbed methane field, while China United will take up 30 percent, it said.

CNOOC Ltd, which last month agreed to buy Canadian oil producer Nexen for $15.1 billion in China's largest overseas acquisition, said the 9.93 billion yuan in budgeted expenses included 9.71 billion yuan for exploration for the first three years, with the rest for the remaining two years.

CNOOC Ltd, whose overall exploration expenditure averaged 35.8 billion yuan per year over the past five years, would fund the coalbed methane project with internal resources.

(HK Edition 08/07/2012 page2)