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CNOOC and KazMunayGas Sign Agreements for Zhylyoi Project

2025-05-27

Recently, China National Offshore Oil Corporation (CNOOC) and Kazakhstan’s state-owned KazMunayGas formally signed a joint activity agreement and financing agreement to co-develop the Zhylyoi oil and gas project in the northeastern transition zone of the Caspian Sea. This marks CNOOC’s first investment in Kazakhstan’s economic sector, leveraging the exploration and development of over 185 million tons of petroleum resources to foster deep synergy between Central Asia’s energy hub and China’s energy strategy.

01. First Foray into Kazakhstan

The Zhylyoi project, located in the northeastern transition zone of the Caspian Sea, features complex geological structures with dual potential in the supra-salt and sub-salt reservoirs. This region combines the ease of development of shelf oilfields with the high-return characteristics of deepwater exploration. Under the agreement, both parties will form a 50:50 joint venture, with CNOOC funding the entire exploration phase. Through 3D seismic surveys and ultra-deep drilling (2,000 meters supra-salt and 4,500 meters sub-salt), they aim to unlock geological mysteries. This “risk-sharing, profit-sharing” model alleviates Kazakhstan’s financial burden while providing an entry point for embedding Chinese technical standards into Central Asia’s exploration system.

For Kazakhstan, the Zhylyoi project’s significance extends beyond oil extraction. As a country frequently exceeding OPEC+ production quotas, Kazakhstan seeks to break free from the “increased production equals violation” dilemma. By introducing CNOOC’s technology and capital, Kazakhstan can enhance its deepwater development capabilities in the Caspian Sea (where current offshore fields are typically less than 500 meters deep) and reduce costs through CNOOC’s global supply chain. More profoundly, the project forms an industrial chain loop with concurrent polyethylene and urea petrochemical projects, driving Kazakhstan’s transition from crude oil exports to high-value-added chemical manufacturing.

For CNOOC, this collaboration marks a critical breakthrough in its “westward strategy.” Over the past decade, China’s energy investments in Central Asia have focused on pipeline transportation and onshore oilfields. The Zhylyoi project extends CNOOC’s reach into the Caspian deepwater zone, a region long dominated by Russia and Azerbaijan. Through this project, CNOOC not only gains a potential springboard to European energy markets but also establishes a “Central Asia–Caspian–Black Sea” energy hedging corridor amid the energy landscape reshuffle triggered by U.S. and EU sanctions on Russia.

02. CNOOC’s Global Quest: A Triple Breakthrough

If the Zhylyoi project is a milestone in CNOOC’s westward expansion, its global strategy in 2025 reflects a broader vision. From South America’s sub-salt oilfields to West Africa’s deepwater zones, this Chinese energy giant is transitioning from “scale expansion” to “quality leap.”

On February 15, the world’s largest deepwater oilfield, Brazil’s Buzios Phase VII, commenced production, marking CNOOC’s shift from “equity participation” to “technology export.” This super oilfield, operating at a water depth of 2,000 meters, utilizes China’s independently designed FPSO Almirante Tamandaré platform, with a daily crude oil capacity of 225,000 barrels. This achievement is underpinned by breakthroughs in subsea compression systems and intelligent completion technologies. Notably, CNOOC’s 7.34% equity stake enables full participation from exploration to sales, including leading the establishment of an independent natural gas sales system.

In Guyana, CNOOC’s “rolling exploration + equity swap” model has boosted the Stabroek block’s exploration success rate to an industry-rare 80%. In Mozambique, its “gas field development + LNG long-term contract” approach directly links East African gas to China’s South China market. This deep integration, beyond traditional trade relationships, enabled CNOOC to secure a 12-million-barrel crude oil long-term contract from Brazil’s Mero oilfield in 2025, marking the first time a Chinese company has dominated the supply chain of a major Latin American oilfield.

The Middle East market also saw significant progress. On March 27, CNOOC’s subsidiary, COOEC, signed a memorandum of cooperation with Saudi Aramco to build an offshore manufacturing base in Saudi Arabia. This project not only boosts Saudi Arabia’s localized industrial development but also signifies CNOOC’s transformation from a pure oil and gas producer to a full energy industry chain service provider.

03. Strategic Depth: CNOOC’s Global Chessboard and China’s Energy Security

CNOOC’s 2025 overseas strategy reveals a clear strategic axis: breaking geopolitical barriers with technological advancements, restructuring profit distribution through innovative models, and addressing climate politics with green transitions.

Through equity lock-ins in projects in Brazil, Guyana, Nigeria, and beyond, CNOOC’s overseas equity production is expected to reach 2.4 million barrels per day in 2025, accounting for 15% of China’s crude oil imports. Unlike traditional “take-or-pay” contracts, CNOOC’s innovative “fixed return + floating dividend” mechanism provides cost buffers for Chinese refineries amid oil price fluctuations. Crucially, these projects, located along the Atlantic coasts, offer geographic hedging against traditional sources like the Middle East and Russia, significantly mitigating transportation risks through the Malacca Strait.

In the Buzios oilfield, China-manufactured FPSO platforms adopted the “Beidou + 5G” intelligent management system for the first time. In the Zhylyoi project, 3D seismic data will be integrated into CNOOC’s independently developed “Smart Ocean Brain” exploration cloud platform. This penetration of Chinese technical standards is transforming China from an energy rule “taker” to a “maker,” even influencing technical parameters in OPEC+ production decisions.

Facing U.S. and EU “long-arm jurisdiction” sanctions on Russian energy, CNOOC mitigates secondary sanction risks through “third-party cooperation” in Kazakhstan and Iraq projects. In Brazil, its technical alliance with Total and Shell transforms U.S.-China rivalry into multilateral interest alignment. With technology, capital, and strategic acumen, CNOOC is contributing a Chinese solution to building a diverse, clean, and efficient global energy system.

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