China National Offshore Oil Corp, known as CNOOC Group, on Tuesday signed a production-sharing contract or PSC with BP PLC (BP.LN) to develop a deepwater block in the South China Sea

CNOOC, BP Sign Production Sharing Contract in South China Sea

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   By Wayne Ma 
 

BEIJING--China National Offshore Oil Corp, known as CNOOC Group, on Tuesday signed a production-sharing contract or PSC with BP PLC (BP.LN) to develop a deepwater block in the South China Sea.

The block, known as 54/11, is about 4,500 square kilometers in size and is as much as 1,300 meters deep. The block is located in the western part of the Pearl River Mouth Basin. Financial terms of the contract weren't available.

Foreign companies can only participate in exploration and production in China using PSCs, which are won through negotiation or invitations to bid. The foreign companies aren't allowed to own more than 49% of the projects.

BP already has minority stakes in two deepwater blocks in the South China Sea, both of which are in the exploration phase.

In December, BP said it would sell its minority stake in the Yacheng gas field in the South China Sea to Kuwait Petroleum Exploration Co. for $308 million. BP operated the field between 1996 and 2004 before handing it off to CNOOC. BP said the sale was part of its "ongoing portfolio optimization."

CNOOC, China's primary offshore oil and gas producer, has been trying to improve its deepwater expertise and technology by inviting foreign partners to jointly develop deepwater blocks in the South China Sea. Each year, it makes offshore blocks available for joint development with foreign companies.

The Chinese company also has been trying to develop its own deepwater abilities. Last year, CNOOC began operating its first deepwater drilling rig capable of operating at a depth of 3,000 meters.

With China's oil and gas output slowing since 2011 due to maturing fields, CNOOC needs to develop remote deepsea areas to help meet the country's heavy energy demand.

China in December approved CNOOC's plan with Canadian Energy firm Husky Energy Inc. for the country's first deepwater natural gas field, Liwan 3-1, set to begin commercial production later this year. CNOOC owns 51% of Liwan 3-1 and the Toronto-listed Husky Energy owns 49%.

Write to Wayne Ma at wayne.ma@dowjones.com