British Petroleum (BP), hit by falling output, is looking to begin exploration in blocks in the South China Sea.

BP has a strategic focus on deep-water resources around the world. The company received approval to begin exploration in a block in the South China Sea last week. BP will be exploring the 43/11 block in collaboration with Chinese company CNOOC and independent exploration company Anadarko Corp. (APC). Deep-water exploration is becoming an increasingly important source of new reserves for major oil companies.

 

The agreement between BP and the Chinese government to begin exploration of the 43/11 block was signed last year during Vice-Premier Li Keqiang's visit to the U.K. in January last year. The South China Sea is expected to hold vast deep-water reserves of oil and gas.

BP China's President Chen Liming hopes that drilling will begin by the end of this year, although he cautions that the exact date to start the work depends on a number of factors. BP already operates a gas production field in China called the Yacheng field and also holds interest in another deep-water block in the South China Sea.

BP will hold a 40.82% interest in the 43/11 block exploration project and will be the working partner. Anadarko holds a 50% stake, while the rest will be held by state-owned CNOOC. The venture will look to explore the block for natural gas and then take up further development.

BP is also focusing on deep-water exploration in the U.S. Gulf of Mexico and Angola, among other regions, to boost output figures. China is expected to increase its consumption of natural gas over the next few years to meet growing energy needs and to supplement coal as a cleaner alternative.

We have a $55 price estimate for BP, which is at a 25% premium to its current market price.