Bloomberg News

Philippine South China Sea Oil Contracts ‘Within’ Territory

June 15, 2011

(Adds analyst’s comment in fourth paragraph.)

June 15 (Bloomberg) -- The Philippines says oil blocks it plans to offer to international exploration companies later this month in the South China Sea are “well within” its territory, after tensions escalated over drilling rights in the area.

Two of the 15 blocks the nation plans to offer lie within areas also claimed by China, according to a map it presented to the United Nations in 2009. China has repeatedly said it will oppose any attempt to drill for oil in waters where it claims jurisdiction. The Philippines and Vietnam have both protested Chinese harassment of oil survey vessels in the past two months.

Disputes over the South China Sea have drawn in the U.S., which has a defense treaty with the Philippines and says that keeping the world’s busiest shipping lane open is of national strategic importance. Recent signs that China’s Southeast Asian neighbors are pushing ahead with attempts to unlock oil and gas reserves beneath the ocean floor have raised the risk of military standoffs in the region.

“The stakes are slowly rising,” Carlyle A. Thayer, a professor of politics at the Australian Defense Force Academy in Canberra, said in an interview on Bloomberg Television. “What is China going to do by way of response? That’s what’s worrying.”

The Philippines plans to offer the contracts by the end of the month, Energy Undersecretary Jose Layug told reporters yesterday.

‘Legitimate Rights’

“All areas we’re offering are definitely undisputed and within Philippine territory,” he said by phone yesterday in Manila.

Chinese Foreign Ministry spokesman Hong Lei said yesterday that the government hoped “relevant parties will make more contributions to peace and stability in the region.”

Hong was responding to a question about a resolution submitted June 13 by Virginia Senator Jim Webb condemning the use of force by China in the South China Sea and calling for multilateral negotiations to resolve maritime disputes. Webb is a Democrat who served as President Ronald Reagan’s secretary of the Navy.

“China is trying to safeguard its own legitimate rights and interests instead of infringing on other country’s rights,” Hong said.

In Washington, State Department spokesman Mark Toner said the U.S. wants to see a solution “without coercion.”

“We’re obviously concerned in recent days of these events that have raised tensions in the region,” Toner said at a State Department briefing. “We share a number of interests with the international community in the South China Sea. We’re looking for a peaceful, collaborative and diplomatic process to resolve this.”

Two Blocks

Two of the blocks set to be offered are in waters close to where Chinese vessels in March harassed a survey vessel from Forum Energy Plc, which held a contract from the Philippines to explore the area.

State-owned PetroVietnam’s Canadian partner, Calgary-based Talisman Energy Inc., said on its website it aims to begin drilling next year in a separate block that China awarded to a U.S. rival and has protected with gunboats. Irving, Texas-based Exxon Mobil Corp. plans an exploratory well off Vietnam this year, Mark W. Albers, a senior vice president, said in a March 9 meeting with analysts.

Vietnam said June 9 that a Chinese vessel harassed a survey ship operated by Vietnam Oil & Gas Group in the area Talisman plans to develop. China disputed that version of events, pitting Vietnamese vessels as the aggressors.

Joint Naval Drills

The U.S. will hold joint naval drills with former foe Vietnam next month, the South China Morning Post reported, citing a naval spokesman. Vietnam held a live-fire naval drill off its coast on June 13.

The Philippines and the U.S. are “strategic treaty allies,” U.S. Ambassador Harry Thomas said in a speech in Manila yesterday. “We will continue to consult and work with each other on all issues, including the South China Sea.”

The Philippines is seeking a “peaceful resolution” of the territorial dispute and is in “constant dialogue” with the Chinese Embassy on the issue, President Benigno Aquino’s spokesman Edwin Lacierda said June 13 in Manila.

According to the Philippine energy department’s website, the government will offer 15 blocks with a total area of more than 10 million hectares in northwest and east Palawan and the Sulu Sea basins. It held a roadshow in Singapore early this month and will hold more in Houston and London before the June 30 launch of the Philippine Energy Contracting Round.

Vietnam’s domestic gas demand is set to triple by 2025, according to World Bank estimates, increasing the need to drill. The Philippines will boost hydrocarbon reserves by 40 percent in the next 20 years to reduce its reliance on imports, according to an energy department plan. China’s oil reserves have shrunk almost 40 percent since 2001 as the economy grew 10.5 percent a year on average, according to data compiled by Bloomberg.

--With assistance from Nicole Gaouette in Washington. Editors: Ben Richardson, Peter Hirschberg

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To contact the reporters on this story: Cecilia Yap in Manila at cyap19@bloomberg.net; Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editors responsible for this story: Clarissa Batino at cbatino@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net


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