Shell China Exploration and Production Company Limited has acquired a 55% equity interest in a coalbed methane venture in Shanxi Province and will take over as operator.

China’s Ministry of Commerce recently approved an agreement for Shell to acquire Verona Development Corporation’s majority equity position in a 30-year production sharing contract covering the North Shilou block, an area of 1,015 square kilometres in the eastern part of the Ordos Basin.

Verona maintains a 5% interest in the venture with China United Coalbed Methane Company (CUCBM) holding the remaining 40% equity.

The exploration period of the PSC will end in December 2010. Following this the PSC stipulates five years of development and a 20-year production period.

The North Shilou block is about 150 km southeast of the Changbei gas field, a joint project between PetroChina and Shell, which is the operator.

A comprehensive appraisal programme, comprising 2D seismic acquisition and the drilling of pilot wells, will start early next year.

Lim Haw-Kuang, Executive Chairman of Shell Companies in China, said: “The North Shilou PSC is another important step for the Shell Group in developing a significant and long-term business in China and globally. We are very excited about this project and look forward to working with our joint venture partners Verona and China United Coalbed Methane Company. We are confident that our upstream technologies and expertise can help unlock the vast potential of CBM in the country.”

This is Shell’s third upstream PSC venture in China, after the Xijiang offshore oil development and Changbei.