China National Offshore Oil Corp. (CNOOC) has signed production-sharing contract (PSC) with Husky Oil Operations (China) Ltd. for Block 16/25 in the South China Sea, according to a news release.

Located in the Pearl River Mouth Basin, the block covers a total area of 44 sq km (17 sq miles) with a water depth of 100 m (328 ft).

According to the terms of the PSC, Husky will serve as operator during the exploration phase with a 100% working interest. In a separate news release, Husky said it expects to drill two exploration wells on the shallow-water block in 2018 in conjunction with two planned exploration wells at the nearby exploration Block 15/33.

During the development and production phase, CNOOC has the right to participate in up to 51% of the participating interest if there are any commercial discoveries of the block, the release said.

After signing the PSC, CNOOC said it will assign all of its rights and obligations—except for those relating to its administrative functions under the PSC—to CNOOC China Ltd., a subsidiary of CNOOC Ltd.