China Petroleum & Chemical Corp., or Sinopec, said Friday the company is in talks with BP PLC to explore and develop shale gas resource in China, adding that it plans to bid for six more shale gas blocks to step up its investment in cleaner-burning fuels in the country.

During a conference call with analysts to discuss the company's third-quarter results, Chief Financial Officer Wang Xinhua said the company's arm in eastern China already owns 42 shale gas blocks with a total area of 190,000 square kilometers. "We are now in talks with BP on potential cooperation," he said, but didn't provide further details.

China, which is heavily dependent on imported oil and gas, hopes to replicate the success seen in the U.S. with their own shale gas reserves. So far China has focused on inviting U.S. and European companies into its tightly controlled onshore gas acreage in order to gain technical know-how.

Shale gas is trapped in relatively impermeable rock, and producers need to crack the tight rock formations using streams of water and chemicals.

The Ministry of Land and Resources said Wednesday China plans to auction six shale gas blocks within a month to the country's biggest energy companies, including Sinopec, PetroChina Co., Cnooc Ltd., and Shaanxi Yanchang Petroleum Group.

The auction will involve three blocks in Guizhou province, one in Chongqing municipality, one in Shanxi province, and one along the border between Anhui and Zhejiang provinces. The six blocks are each spread over 6,000-7,000 squared kilometers.

Sinopec imports 70% of its crude oil needs and is therefore more sensitive to a mismatch between domestic and international fuel prices than domestic peers like PetroChina.

In the January-September period, operating profit from Sinopec's refining business fell 61% to 8.49 billion Chinese yuan ($1.27 billion) due to rising fuel costs and government controls on fuel product prices, despite a rise of more than 14% in crude processing volumes.

Wang said the company is optimistic on its fourth-quarter performance following a fuel price increase earlier this week. "We expect the fourth quarter will be a relatively good one for us based on expectations of stable economic growth and demand for our products," he said.

Analysts said they expect Sinopec's refining margins to improve in the fourth quarter. "We estimate this (price hike) could lift the company's refining margin from an average of $5 a barrel to $8 in November given the low-cost inventory on a 50-day time delay," said Shi Yan, an analyst at UOB KayHian. "This should boost its fourth-quarter earnings significantly."

Earlier this week, China raised domestic ex-factory gasoline, diesel and jet fuel prices by 3% to 4% due to higher crude oil prices. Fourteen analysts polled by Thomson Reuters said they expect Sinopec's 2010 net profit to rise to an average of 66.32 billion yuan from 61.8 billion yuan last year.