China’s Sinopec Group has agreed to form a joint venture oilfield services company with Weatherford International to tap into China’s potentially vast shale gas resources. The new entity will combine Weatherford’s technological capabilities with Sinopec’s expansion potential in China, where a complex natural landscape, large population, and chronic water shortages have posed significant challenges to shale extraction.

Sinopec has been in talks with drilling specialist Weatherford since August 2013. While the financial details of the arrangement were not disclosed, it is estimated that the registered capital of the JV is more than $50 million. The company will be controlled by Sinopec and will primarily focus on drilling in China. The deal will open up valuable opportunities in China to western oil service specialists Halliburton, Schlumberger, and Baker Hughes, and will also benefit Sinopec as it looks to overtake domestic rival PetroChina in the natural gas industry.

China is presumed to have the world’s largest recoverable shale gas reserves, and hopes to model the American shale boom, which has doubled the amount of natural gas available in the United States. In hopes of becoming more energy independent, the Chinese government in 2011 set a target of 6.5 billion cubic meters of shale gas production per year by 2015. To meet this goal, China has invested four times as much as the United States into the shale industry in some areas. Once presumed to be out of reach, analysts say this production target is increasingly achievable.

Posted by Catherine Matacic