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Sinopec Sets '14 Goal for Yuanba Project Start-up

Zacks Equity Research

China Petroleum and Chemical Corporation (SNP), also known as Sinopec intends to start producing from the Yuanba sour gas field in China’s south western Sichuan province by the end of 2014.

The Chinese oil production giant will use its own technology to tap resources from the Yuanba field. The Yuanba discovery was made in early 2007 and flowed gas from test wells in early 2012. Drilling at Yuanba field, still seen as a conventional resource, was largely carried out at a depth of 7,500 meters.

The Yuanlu-7 well on the field tested 1.2 million cubic meters of gas per day (MMcm/d), while another well – Yuanlu-5 – drilled in the same area, flowed 1.5 MMcm/d. Then the Yuanba-21 well flowed 507,000 cm/d. As of year-end 2012, the company had drilled 69 wells, of which 25–30% could generate gas flows adequate for commercial development.

The processing plant to be built at Yuanba is likely to produce 3.4 billion cubic meters of gas per year and is scheduled for completion by end of 2014. This amount is equal to 18% of Sinopec’s total output of about 18.7 billion cubic meters in 2013.

The Yuanba project deadline comes close on the heels of Sinopec’s announcement of a key natural gas discovery in the Sichuan Basin – the largest monomer marine uncompartmentalized carbonate gas find in China to date. Subsequent to its $10 billion Puguang venture, the Yuanba project is Sinopec’s second major development of a high-sulphur gas project in Sichuan.

Another sour gas project worth $6.4 billion being built by U.S. firm Chevron Corporation (CVX) in the same geological zone has been postponed continuously due to differences with partner PetroChina.

Sinopec currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the oil and gas industry worth considering include Valero Energy Corporation (VLO) and Range Resources Corporation (RRC). Both these stocks sport a Zacks Rank #1 (Strong Buy).

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