Oil firms face tensions in South China Sea

 

A Chinese vessel fires water cannon at a Vietnamese vessel after China deployed an oil rig, since withdrawn, in the South China Sea. Source: AP

EXECUTIVES at Talisman Energy are excited about promising oil-and-gas prospects off the coast of Vietnam and the Canadian company is gearing up to drill two exploratory wells there this year.

“I would describe these as world-class exploration blocks,” said Paul Ferneyhough, the company’s vice-president for Asia-­Pacific operations. The US calculates that the South China Sea could hold nearly 11 billion barrels of oil and 190 trillion cubic feet of natural gas.

There is a problem: proceeding with drilling could bring Talisman into conflict with China, which claims some of the blocks as its own. Talisman declined to comment on China’s position and Mr Ferneyhough accepts Vietnam’s assurances that Talisman has the right to explore there.

For years, the drive to tap the South China Sea’s potential riches has placed global oil companies in the centre of a quarrel between China and Vietnam over which country owns the resources. Companies that have got caught up include Exxon Mobil, Chevron, ConocoPhillips and BP.

In May, tensions flared anew when state-owned China National Offshore Oil Corporation sailed an oil rig into waters claimed by Vietnam, prompting a standoff between Chinese and Vietnamese vessels.

On Tuesday, China said it had completed drilling for now and was withdrawing the rig, in a potential easing of the standoff. But China’s Foreign Ministry left the door open to future exploration.

Neither Talisman nor US-based Harvest Natural Resources, which hold rights assigned by China to an area separate from the one assigned by Vietnam, has started drilling in the flash point areas. Harvest chief executive James Edmiston told a conference in June that the company was in the process of exiting its China interests.

Some companies have been undeterred. Exxon in 2009 acquired the rights to explore more than 13 million acres off the coast of Vietnam, all within an area Vietnam considers its exclusive economic zone under a UN maritime convention. Some of that acreage is contested by China.

Exxon and its partner, PetroVietnam, drilled two successful wells in 2011 and 2012 in the South China Sea. Exxon said in March it expected to drill an additional well this year as it evaluated a multi-million-dollar natural gas project in Vietnam. A company spokeswoman said disputes of sovereignty were for governments to resolve.

The standoff over which companies can drill and where represents a test of the Obama administration’s ability to convince China to dial back recent confrontations with Vietnam and The Philippines without damaging wider US-Sino ties.

The US also fears Chinese control over contested waters could one day impede the ability of its forces to operate there. Secretary of State John Kerry pressed Chinese officials on the issue during a visit to Beijing last week.

The US has taken moderate steps to heighten pressure on Beijing in recent months over its maritime disputes. Daniel Russel, assistant secretary of State for East Asian and Pacific Affairs, said in congressional testimony in February that China’s claims over nearly the entire South China Sea had no apparent basis in international law.

China flatly rejects what it sees as US meddling in its territorial disputes.

“We want to tell the international community: Don’t expect China to stop drilling after Vietnam’s shouting,” said Wu Shicun, president of China’s National Institute for South China Sea Studies, referring to the flare-up over CNOOC’s drilling rig in waters claimed by Vietnam. The company says it has every right to operate in the disputed waters.

Exxon and PetroVietnam executives last year met in Washington and pledged to advance co-operation.