China Increases Oil Search in U.S.

China's state-owned offshore oil and gas company is intensifying its search for oil in the western United States.

CNOOC announced it will pay US$570M for a one-third stake in Chesapeake Energy's drilling project at an emerging oil field in north-east Colorado and south-east Wyoming.

Chesapeake, an oil and natural gas company based in Oklahoma City, will operate the project, while CNOOC will pay two-thirds of the project's drilling costs, up to an additional US$697M.

In October, CNOOC paid US$1.08B for a one-third stake in a Chesapeake drilling project in South Texas.

Both deals give CNOOC access to shale deposits, an emerging source of oil in the western United States.

Over the past several years, drillers have learned to tap vast amounts of natural gas in these shale deposits, and more recently they have learned to adapt the new technology to produce oil.

Engineers have learned to drill down and then horizontally into layers of shale and they then pump a slurry of sand, water and chemicals into the well to crack the rock and allow oil and gas to escape.

The process, called hydraulic fracturing, is raising concerns that it could contaminate drinking water. The Environmental Protection Agency is studying the safety of the process.

The North Dakota Bakken is producing oil faster than pipelines and trains can take it away, and is now projected to ultimately become the fifth largest oil field ever discovered in the United States.

Drillers more recently discovered that sections of the vast Eagle Ford shale in South Texas are rich in oil deposits, and drilling activity has picked up sharply there. Even more recently, the Niobrara, which stretches under parts of Colorado, Wyoming, Nebraska and Kansas, has begun to show promise.