Cessation looms for Lufeng

February 25, 2003, 00:00 CET

Preparations are being made by operator Statoil and its partner, the China National Offshore Oil Corporation (CNOOC), to shut in the small Lufeng oil field in the South China Sea.

Plans call for production to cease next February after six years on stream. Today’s daily output of roughly 6,500 barrels is expected to decline to 4,500 in 2004.

“Continued operation is unlikely to be economic at that level of production,” says Inge Kjøde, head of Statoil Orient in China.

Plans to abandon the field must be approved by the CNOOC and the Chinese authorities, and Mr Kjøde reports that this work could create a precedent.

That is because Lufeng will be the first oil development off China to cease production.

Among other steps, the licensees are due to produce an environmental study as required by Chinese guidelines.

No decision has yet been taken on whether the physical shut-in will be completed as a single operation or in several phases.

Once the Munin production ship currently deployed on the field has been freed up, it can be readied for other assignments.

Lufeng is Statoil’s only project in China, and Mr Kjøde accordingly expects the group to close down its operation there when the field has been abandoned.

The office in Shekou employs 21 Chinese staff together with seven personnel posted from the parent company. In addition, there is a crew of about 60 local employees on Munin.

Lufeng came on stream in December 1997, and the production target of at least 20 million barrels of equity oil was reached after just four years.

Around 40 per cent of the field’s output was sold while prices were low, but a subsequent increase in the cost of crude has improved the economics and extended producing life.

Statoil has a 75 per cent interest in Lufeng, with the CNOOC holding the remaining 25 per cent.