PetroVietnam Protests Chinese Plans as South China Sea Spat Deepens - WSJ.com

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business activities" in line with Chinese law and international practice. Cnooc's move is likely influenced by a desire to see how far it can press its claims in the sea rather than entirely commercial considerations, analysts and diplomats say. Few foreign firms are likely to engage in drilling in such disputed waters, especially after Vietnam's protests. "There is no way any foreign company will go there," said Laban Yu, head of oil and gas research at Jefferies Hong Kong Ltd., a securities and investment banking firm. "This is

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PetroVietnam Protests Chinese Plans as South China Sea Spat Deepens - WSJ.com just Cnooc being used by the central government to make a statement." An official from a third country that also has claims in the sea said the bidding announcement appeared to be designed to buttress China's territorial claims to the area while nearby countries such as Vietnam and Philippines press ahead with their own plans to drill for oil and gas in other parts of the South China Sea.

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The Cnooc blocks, in water 300 to 4,000 meters (1,000 to 13,000 feet) deep, cover an area of about 160,000 square kilometers (62,000 square miles). Previously, most blocks offered for joint development by the state-owned firm were located well within Chinese waters, and mostly in shallow water. "Either Cnooc is doing national service and helping Beijing push the boundary of the South China Sea maritime dispute, or it's doing what analysts have been calling for" and pursuing foreign help to increase the size of its reserves, said Simon Powell, head of Asian oil and gas research at CLSA. Mr. Powell added that the resources there are more likely to be gas than oil, and thus less attractive to potential foreign partners. "Given how low natural-gas prices are in China, the distance of these blocks from the mainland and how uneconomic it is to lay pipelines and run gas from such distances, maybe the offerings are more about politics than about earnings," he said. The spat looks set to further shake relations between Vietnam and China, which, while both having Communist governments, view each other with suspicion. Relations between the two countries worsened after Hanoi's legislature passed a new law last week claiming Vietnam's sovereignty over the Spratlys and Paracels archipelagos, which are also in the South China Sea. China summoned Vietnam's ambassador to Beijing to protest the new law, which will be enacted at the beginning of next year but will have little real impact on who controls the island chains. Some of the atolls are partially occupied by small garrisons from some of the claimant nations, including China, Vietnam and the Philippines.

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Vietnam dismissed China's objections as "absurd," with a Foreign Ministry spokesman last week describing Vietnam's move as "normal lawmaking activity." Vietnam also has objected to apparent recent Chinese moves to assert jurisdiction over portions of the South China Sea; China recently bestowed higher, prefectural-level powers upon a city in its Hainan province to administer some South China Sea islands, state media reported.

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The stakes in the South China Sea have grown significantly in recent years as East Asia's energy-hungry economies roar ahead. For China, the energy resources that geologists believe to lie below its waters are means to potentially reduce its dependence on imports from the Middle East and elsewhere. The contested waters contain 28 billion to 213 billion barrels in proven and undiscovered oil resources, according to figures cited by the U.S. Energy Information Administration. It isn't clear, though, how much is easily accessible. China, Vietnam and the Philippines all have stepped up exploration and drilling in the sea in recent years. Earlier this week, Italy's Eni SpA bought 50% stakes in two exploration blocks in Vietnamese-controlled waters. Eni's partner, Australia's Neon Energy Ltd., said Monday that Eni will carry out early technical work and finance exploratory drilling in each block. ExxonMobil Corp. also has acquired Vietnamese blocks in the South China Sea. Last October it said it found oil and gas in its second exploration well. British-Philippine firm Forum Energy Plc, meanwhile, plans to begin drilling off Reed Bank in the Philippines' U.N.-declared waters later this year. In addition to China and Vietnam, the Philippines, Malaysia, Taiwan and Brunei also claim parts of the South China Sea. The U.S. in recent years has angered China by urging multilateral talks to resolve the overlapping claims in the area, and also to ensure safe navigation for some of the world's busiest shipping lanes as China's commercial

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PetroVietnam Protests Chinese Plans as South China Sea Spat Deepens - WSJ.com and military power grows. Write to Wayne Ma at wayne.ma@dowjones.com and James Hookway at james.hookway@wsj.com A version of this article appeared June 28, 2012, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: Vietnam Spars With China Over Oil Plans.

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