A page out of his own book

Updated: 2012-09-21 07:36

By Meng Jing (China Daily)

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 A page out of his own book

Frank Ingriselli sees numerous business opportunities in China's fledging shale-gas industry. Kuang Linhua / China Daily

For this veteran, the opening of China's shale-gas industry has old connections and new opportunities

When Frank Ingriselli was assigned to broker an oil contract with China in 1979, he didn't know how long the process would take. The discussions would stretch over the next four years, but it was worth the work - in 1983, Ingriselli was in Beijing's Great Hall to witness the signing of the first ever oil production-sharing contract between the Chinese government and a foreign company.

As a former dealmaker at US-based Texaco, which was one of the largest oil companies in the world before it merged with Chevron Corp in 2001, Ingriselli's job was to find oil and gas in other countries and travel around the world to negotiate high-stakes deals.

Despite his vast experience, Ingriselli is still most proud of the deal he struck in China, which was signed and sealed when he was 28 years old. Now 58, Ingriselli points out that his Chinese coup didn't just kick-start his career at Texaco, where he would eventually become president of international operations - it helped establish wells in the South China Sea that are still producing more than 70,000 barrels of oil per day and generating annual profits of more than $1 billion for its Chinese partner.

Though he took a redundancy package from Chevron in 2001, Ingriselli has been involved in various oil and gas ventures over the past decade, and he is once more trying to strike a deal in China's energy sector. Now president of California-based Pacific Energy Development, a company he founded in January 2011, Ingriselli is looking to participate in the second tendering of shale gas blocks in China. Shale gas is natural gas that is locked in shale formations and Ingriselli's plan is to team up with a Chinese company to tap the country's potentially huge shale gas industry.

"China opened up 30 years ago for foreign companies to bring in their finances and technology to work in deep water. The country is now opening up to shale and my new company is stepping up for this new offering," he says, adding his experience as a dealmaker has always helped him cater to the needs of his company and his partners.

The Chinese government's needs are pretty obvious to Ingriselli. Sitting on the largest shale gas reserve in the world and facing soaring energy demand - when Ingriselli came to China in the 1980s, the country was a net exporter of oil, but is now the second-largest oil importer after the US - China's desire to rapidly develop its shale gas reserve and increase its domestic energy supply is unsurprisingly strong.

China recently set a production target of 6.5 billion cubic meters of shale gas a year by 2015, up from virtually zero this year. It hopes to produce 60 billion to 100 billion cubic meters a year by 2020, but to do so it will need expertise and investments, Ingriselli says.

To further encourage the key players within the shale gas industry, China not only released 20 shale gas blocks on Sept 10 for the upcoming second tender but also announced its intentions to open up some shale gas blocks for private companies. This represents a major policy change as the estimated 50 trillion yuan industry was till now mostly restricted to State-owned enterprises.

Though foreign companies are not directly allowed to buy up shale gas blocks in China, they can team up with qualified Chinese companies to co-develop shale gas assets, and this is where Ingriselli sees business opportunities.

Extracting gas from shale requires special technology, such as hydraulic fracturing. The same technology has spurred a natural-gas boom in the US over the past decade.

"A lot of bidders that have shown interest don't have a lot of experience in oil and gas or shale, which puts us, a startup company in the US, in the same league with big oil companies in China in terms of developing shale economically," Ingriselli says, adding that his company's expertise will help it secure a block in the second tender.

While this may seem unlikely given that his company, Pacific Energy Development, will be going up against international giants such as Royal Dutch Shell Co, Ingriselli says entrepreneurial companies like his have a fire in their belly that allows them to act quickly and effectively.

"The success of the US shale gas industry is because of the participation of tens of thousands of small companies. There is still room for niche players in China's shale gas development," he says.

Adi Karev, global head of oil and gas with the consultancy firm Deloitte, agrees, saying the largest shale gas reserves in the world and the soaring demand for energy in China makes the country's shale gas industry attractive for foreign oil giants.

"But there are also high risks resulting from the lack of a pipeline network and other regulations," he says, pointing out that some multinationals may be hesitant to invest heavily unless they can expect large returns.

Apart from Shell, which has a production-sharing contract entailing serious investment, exploration and production, other major players in this field are still conducting joint assessments with Chinese partners to see if a block is worth developing.

But the owners of small companies such as Ingriselli see no reason to refrain from the fray. Pacific Energy Development, a joint venture with Hong Kong-listed MIE Holdings - a Chinese upstream oil company with around 2,000 wells in Northeast China's Jilin province - has only five shale gas wells in the US and no serious engagement with China despite a senior executive based in Beijing. Ingreselli, however, has already set an ambitious goal for China.

"In five years, we will have 50 percent of our business based in China," he says, adding that Pacific Energy Development's revenue will reach around $2 million this year because many of its wells had not started producing shale gas until four months ago. Ingriselli expects revenue to rise dramatically to $30 million in 2013 and to $120 million in 2014 as the joint venture plans to drill 50 wells in the US next year.

He says shale gas wells have the unique capability of producing a lot of gas or oil in the first 12 months of production. "So you will get back probably 60 to 70 percent of the cost of drilling one well in one year. It is a very good return on investment. That will also happen in China," he says.

Ingriselli is now in the country for two months to better analyze the 20 shale blocks on offer and discuss business with potential bidding partners. His ally for the Chinese shale gas market is likely to be his existing joint-venture partner MIE Holdings, but this has not been finalized.

"The top priority for us in China will be getting one block and developing a model production-sharing contract like the one I negotiated 30 years ago," he says.

He admits that deals took a long time in the 1980s but much of that time was spent working with Chinese counterparts to develop oil and gas laws in China that would support foreign investment.

Now, Ingriselli says, that effort has paid off as any future contracts are likely to be very similar to the groundbreaking contract he secured for Texaco.

"The seed that was planted 30 years ago has matured into a tree blossoming with flowers and fruit that we are now enjoying as we embark on a future partnership to develop China's shale assets and mutually enjoy the fruits of our labor and partnership," he says.


(China Daily 09/21/2012 page16)