ERHC Energy Inc (ERHE)

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Sinopec, BP Talk for Shale Gas

Sinopec (NYSE: SNP - News), the Chinese oil giant, is in talks over a possible collaboration with BP plc (NYSE: BP - News) in shale gas development. This discussion follows the finalization of a deal between Royal Dutch Shell (AMEX: RDS - News) and PetroChina (NYSE: PTR - News) during last November to jointly develop shale gas resources in southwest China.

For this project, Sinopec has charted a total of 3,000 square kilometers, including 2,000 square kilometers in southwestern China and 1,000 square kilometers in eastern China. To tap these resources, China is seeking foreign expertise.



For shale gas development, a huge amount of water along with chemicals is needed to be pumped into the ground at high pressure to break up the rock. Following the accomplishment of two deals with Chesapeake Energy (NYSE: CHK - News) in 2008, BP has been gaining expertise in this relatively new area with an eye toward transferring the technology overseas as well.



We think that these shale gas transactions will have a twofold positive outcome. They will open new opportunities to increase potential reserves for companies such as Shell and BP, who have been struggling for quite some time to add numbers to their reserve bases. On the other side, these transactions will help China reduce its reliance on coal.