Sinopec Deal With Weatherford Highlights China’s Huge Shale Reserves

Throughout the course of 2013, much has been made of the shale boom that will lead the United States to becoming the world’s largest producer and exporter of energy, surpassing the usual top contenders in this category.

In actuality much of this reporting has left out the fact that China, the world’s second largest economy, also has shale reserves, and furthermore that these reserves are suspected of making up the world’s biggest recoverable deposits of shale gas. What will be said of America’s “energy revolution” if, or better yet when, the Chinese begin hydro-fracking their own shale formations to the same extent that the US currently is?

The answer may be coming sooner than later, as the largest Chinese refiner Sinopec Corp. (SNP) is reportedly in late-stage talks with the Swiss oilfield services company Weatherford International (WFT) regarding the creation of a joint firm that would help to tap into China’s vast reserves of shale gas and oil.

Weatherford, along with other oilfield service providers such as Schlumberger (SLB) and Halliburton (HAL) are no strangers to China, but their work so far has focused on more traditional sources of oil and gas. But Weatherford has been talking with Sinopec’s own oilfield services subsidiary, Sinopec Oilfield Service Company (SOSC), for about a year now, though no official announcement has yet been made.

While expectations for a Chinese shale boom are not expected to materialize until the end of the decade at earliest, there is significant impetus for both companies to conclude a deal. China currently has less than 150 drilled shale gas wells, leaving a wide open playing field.

Weatherford is the world’s seventh-largest oilfield services firm and its expertise in shale drilling is valued very highly by Sinopec, whose own SOSC has revenue that is more or less on par with its Swiss counterpart. SOSC’s previous attempts at gaining shale know-how have brought it to the US, where it has worked in partnership with Chesapeake Energy ($CHK) and Devon Energy (DVN) .

The proposed joint venture would likely be run by Sinopec, and Weatherford is expected to support SOSC going public in an initial stock offering, as early as next year. Shares for the Swiss company were up 1.6 percent to $14.51 in midday trading.