China recently announced the number of bidders in the second round of shale block tenders: 83 companies making 152 bids for 19 exploration blocks.
The companies were local, many are experienced oil and gas operators, and others are relatively (or totally) new to the business. Some are downstream players-distributors, generators, or high end users of gas who are looking secure supply. Others apparently include real-estate firms and investment companies.
As part of the tender process, these local companies are required to either demonstrate their own capabilities, or prove that they have partnerships and joint ventures in place with qualified local or foreign exploration and production (E&P) companies who can bring in the required knowledge and skills.
Foreign partners, however, must be minority shareholders (no more than 49%).
China has ambitious plans to maximise production from its coal bed methane (CBM) and shale gas reserves.
However, one of the keys to unlocking this vast potential will be accessing and applying the skills and knowledge already developed in other parts of the world to the operational environment in China.
For both local Chinese and foreign companies, developing successful partnerships will require an understanding of how to work together, and an appreciation of the relatively undeveloped nature of the shale and CBM industries in China.
Developing a track record
Although there are many international E&P companies who have shale gas and/or CBM experience, China is different and presents unique challenges.
The geology's different, there are different regulations and, with inexperienced partners, there will certainly be different expectations on outcomes.
Dart Energy International was an early mover into the Chinese CBM gas sector, and we are one of the few foreign E&P companies to actually have a track record of drilling multiple wells and moving into pilot commercial production in this highly promising sector.
Working on unconventional Chinese projects, DEI has been through a steep learning curve. Having a consistent and compelling presence on-the-ground in China has been a huge advantage.
We are seen as being committed to the market, and have developed a reputation as a solid partner who understands where we can add the most value. For those looking to get involved, that is an important lesson: technology can be foreign, but the commercial business needs to be local.
Choosing the right partner
The challenges have been many. But these are experiences that any foreign company working successfully in China will need to overcome. There are a number of key factors that all sides should consider when entering into partnerships in China, including:
Investing in high quality local staff: For foreign businesses, local staff are key to getting projects and partnerships moving - and keeping them going. They will make or break the relationships which are needed to successfully operate on-the-ground.
Key local people will also be the commercial drives of these projects. Technical expertise can come from anywhere, but on the commercial side, local experience and expertise is vital.
Know your place in the market: Or, know where you can add most value in a partnership. The Chinese O&G majors may be less interested in working with smaller E&P companies (NB Dart Energy International has partnered with PetroChina, CUCBM and HCBM).
Their deals, exploration blocks, and partners will already be lined up. However, those with less experience-the distributors, generators, or high users of gas who are looking to secure supply-will have a greater appetite for working with smaller foreign E&P partners. The company-to-company fit will be better.
Develop a local track-record: Yes, easier said than done. But a key advantage DEI has benefited from is that we have already worked on two local unconventional projects and, additionally, have brought wells into pilot commercial production.
In a market where expertise and experience is scarce, this is a real plus and means Dart Energy International has a sound reputation for getting results ... and getting projects done is really the true test.
Make sure it's mutually beneficial: This may be a little on the 'obvious' side of the ledger, but each partner should ideally bring something to the table. Foreign companies are expected to bring in, and transfer, technical skills.
So it should be up to the local partners to bring in the downstream networks. Finding gas is one thing, it is important that the partnership knows what to do with it once they have it.
It's the soft, intangible, skills that will be needed to develop successful ongoing Chinese-foreign partnerships. These are, unsurprisingly, best delivered by talented local team members. But all companies working in China (and Chinese companies working with foreign E&P operators) should go in with their eyes wide open.
Each side will have a lot to learn, and managing both parties' expectations and operational styles will be crucial to running successful projects.