Dominique Gardy, CEO of Shell Exploration and Production, Asia Pacific, said: "This development closely fits with Shell's strategy in China to assist the country harness its natural gas resources and contribute towards developing clean and sustainable energy resources."

The first development under the contracts will be the Chunxiao development area, where offshore production facilities are expected to come on stream in mid 2005. Production is expected to reach 2.5 billion cubic metres per year within two years.

The production facilities will process natural gas, oil and condensate from wells to be drilled in the Chunxiao, Tianwaitian, Can Xue, and Duanqiao fields. A 350km subsea gas pipeline will be laid to an onshore terminal in Ningbo, Zhejiang Province. The natural gas will be marketed jointly by the contract partners to users in East China.

The oil and condensate will be exported via a 60km pipeline to the Pinghu oil platform.

Construction of the Chunxiao production facilities has already started and the partners are discussing the exploration and development of the other contract areas.

Shell subsidiary Pecten Orient and Unocal East China Sea Limited will take a 20% interest while CNOOC and Sinopec will have a 30% interest each. CNOOC will be the operator of all five contract areas and will establish the Xihu Oil and Gas Operating Company.