PetroChina has teamed up with Sinochem Corp to tap shale gas from five blocks in the southwest of China, the state-run companies said.

The two firms, together with State Development and Investment Corp (SDIC) and a local company, have jointly set up Chongqing Shale Gas Exploration and Development Co Ltd, with a total registered capital of 6 billion yuan ($974.96 million).

The new entity aim to start production in 2017, Securities Daily reported on Thursday.

It plans to spend 26.05 billion yuan ($4.2 billion) to tap the five shale blocks, the newspaper said. The blocks total 15,600 square km in size and are mostly located near the sprawling Chongqing municipality

Mao Zefeng, a PetroChina spokesman, could not immediately confirm the reported production start date or investment figure, but said PetroChina welcomed other companies sharing the exploration risks.

China, believed to hold the world's largest technically recoverable shale gas reserves, is at an early stage of shale gas development, which has proved challenging due to complex geology and scarcity of water.

Companies, led by state oil firms PetroChina and Sinopec Corp, have drilled a total of about 400 wells and are forecast to produce 1.6 billion cubic metres (bcm) of shale gas this year, a fraction of China's total gas demand of 170 bcm in 2013, industry experts have said.

Securities Daily said the new Chongqing firm plans to drill 16 appraisal wells and 360 production wells.

PetroChina holds a 40-percent in the company, Sinochem 20 percent, SDIC 39 percent and a local Chongqing firm 1 percent, companies said.