On September 10, 2012, the Ministry of Land and Resources of the People's Republic of China (the "MLR") announced the commencement of China's second round of shale gas bidding (the "Bidding"). Bidders are invited to bid for 20 blocks located in eight provinces, with a total area of 20,002.16 square kilometers. Both the largest and smallest tracts are located in Hubei province, with the Hubei Hefeng block covering an area of 2,306.71 square kilometers and the Hubei Laifeng Xianfeng block covering an area of 369.23 square kilometers.
Bids are due and scheduled to be opened on October 25, 2012. Prospective bidders may obtain the bidding package on or before September 14, 2012, by presenting their business license, documents evidencing the satisfaction of the Exploration Qualification requirement (as further described below), and other required documents. We anticipate that the bidding package will be only in Chinese.
The September 10 announcement provides that bidders need to be Chinese domestic enterprises or Sino-foreign joint ventures controlled by Chinese parties. Additional bidder qualification requirements include that: (i) bidders must have a minimum registered capital of RMB 300 million; (ii) bidders must have the exploration qualifications for oil and gas or for gaseous minerals (the "Exploration Qualification"), or must have established a cooperative relationship with entities that have the Exploration Qualification; and (iii) bidders must be independent legal persons and cannot bid in a consortium.
A significant change in the bidder qualification requirements is that Sino-foreign joint ventures (controlled by Chinese parties) are now allowed to participate in the Bidding (an interest solicitation announcement published by the MLR in May 2012 provided that bidders must be Chinese domestic companies). However, given the tight schedule to submit bids prior to October 25, 2012, it is unlikely that a foreign company would be able to form a new joint venture with Chinese parties to participate in the Bidding. Only existing joint ventures interested in China's shale gas will benefit from this change.
The Exploration Qualification is a license issued by the MLR or its local counterparts with respect to the exploration for either oil and gas or other gaseous minerals, pursuant to the PRC Regulation on the Administration of Geological Survey Qualifications promulgated by the PRC State Council on March 3, 2008. In the September 10 announcement, the MLR further clarifies that each Exploration Qualification holder may only cooperate with one bidder. This requirement will prevent Exploration Qualification holders from leasing their qualification to multiple bidders, but will likely intensify the competition among bidders who do not have the Exploration Qualification to secure partnerships with Exploration Qualification holders.
The Bidding is for shale gas prospecting rights, which will have a term of three years. Successful bidders are required to incorporate local companies in the provinces where their blocks are located when transforming the shale gas prospecting rights to exploitation rights.
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