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
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
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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