Given conventional production in China has peaked, the government is encouraging foreign investment and technology to help unlock unconventional gas potential (tight, sour, CBM and shale) to provide the next leg of production growth. As illustrated above, foreign company production remains marginal in the overall Chinese and global context.

ExxonMobil has no current production in China but in July 2011, signed a Joint Study Agreement covering 900k acres in the Sichuan Basin and is working with Sinopec to evaluate shale gas potential on the block.

Chevron has four operated PSCs in China – Chuandongbei natgas project in the onshore Sichuan Basin and three deepwater/shallow water blocks in South China Sea – and four non-operated PSCs. The company's net acreage in the country has fluctuated in the past four years, ranging from 294k acres at YE09 to 4,766k at YE10. Chevron held 921k acres at YE12. In 2012, CVX produced 20kb/d of liquids and 9mmcf/d of natgas in China, flat yoy, and commenced a shale gas drilling program in the Qiannan Basin in Guizhou province.

ConocoPhillips produced 39kb/d of liquids and 3mmcf/d of natgas in China last year, with Peng Lai operations (COP 49%) being conducted under the so-called reservoir adjustment and management plan supplement following the 2011 Bohai Bay spills. In December 2012, COP entered a two-year joint study agreement with Sinopec for the 1 million-acre Qijiang shale gas block in the Sichuan Basin.

Hess, which does not have production in the country, signed a joint study agreement with PetroChina in 2010 on enhancing output at the mature Daqing oil field in the Songliao Basin in NE China. Hess signed two agreements with Sinopec in 2011 to study tight oil and shale oil/gas at the Shengli oil field in the Bohai Bay Basin. And in 2012, Hess signed another joint study agreement with PetroChina to evaluate unconventional oil and gas resource potential covering 200k gross acres in the Santanghu Basin in Xinjiang province.

Eoin Treacy's view As the world's largest energy consumer, China has little choice but to attempt to secure international supplies but also to do whatever it can to increase domestic production. Considering the technological finesse required to efficiently develop unconventional oil and gas reserves, the potential for US oil companies to benefit from China's production growth are considerable. (Also see yesterday's piece on LNG companies).

Chevron (P/E 9.79, DY 3.19%) broke successfully above the psychological $110 area in January and continues to find support in the region of the 200-day MA on pullbacks. While somewhat overextended at present, a sustained move below $115 would be required to question medium-term scope for continued upside.

PetroChina (P/E 11.67, DY 3.81%) has dropped to test the lower side of its more than two-year range. A clear upward dynamic will be required to check the downward bias and suggest a return to demand dominance.