Cnooc Deploys Oil Rig as Weapon to Assert China Sea Claims

China’s first deep-water drilling rig began operations near islands in the South China Sea in a move to assert Beijing’s territorial claims as travel agencies suspended tours to the Philippines amid safety concerns.

Cnooc Ltd. (883), China’s largest offshore oil producer, said its semi-submersible CNOOC 981 began drilling yesterday 320 kilometers (199 miles) southeast of Hong Kong at a depth of 1,500 meters, the official Xinhua News Agency reported. The area is north of the Paracel islands claimed by China, Vietnam and Taiwan.

“Large deep-water drilling rigs are our mobile national territory and strategic weapon for promoting the development of the country’s offshore oil industry,” said Wang Yilin, Cnooc’s chairman, according to Xinhua. The rig would help China secure energy resources in the waters, it cited him as saying.

Competition for energy reserves in the sea has increased tensions as countries shun joint development and improve their respective naval capabilities. Chinese vessels have confronted Vietnamese survey ships over the past year and have been locked in a monthlong standoff with Philippine boats over a disputed island in another area of the sea.

About 10 groups from China with as many as 500 tourists in total canceled trips to the Philippines, according to Maria Victoria Jasmin, undersecretary in the Department of Tourism. Chinese visitor arrivals to the Philippines increased 78 percent from last year in the first three months of 2012 to about 96,000, making it the fastest growing market, she said.

Photographer: Jerome Favre/Bloomberg

Cnooc Ltd. Chairman Wang Yilin. Close

Cnooc Ltd. Chairman Wang Yilin.

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Photographer: Jerome Favre/Bloomberg

Cnooc Ltd. Chairman Wang Yilin.

‘Word of Mouth’

“This is unusual because there is no advisory,” Jasmin said by phone. “It’s like word of mouth spreading. ‘‘We need to be very careful in the statements that we make lest we make the situation worse.’’

Chinese travel agencies including Ctrip.com, its largest online booking company, suspended tours to the Philippines over the island dispute, Xinhua reported. The Philippines should stop escalating tensions in the South China Sea and ensure the safety of Chinese people and companies in the country, Foreign Ministry spokesman Hong Lei said in Beijing.

‘‘The development of indigenous deep-sea drilling is indeed a big step forward for the Chinese,’’ said Gary Li, head of marine and aviation forecasting at Exclusive Analysis Ltd., a London-based business advisory firm. ‘‘They have blamed their previous inability to harvest South China Sea resources primarily on the lack of deep drilling technology.’’

Oil and Gas

The waters are estimated to have as much as 30 billion tons of oil and 16 trillion cubic meters of gas, which would account for about one-third of China’s oil and gas resources, Xinhua said. China had 2 billion tons of proven oil reserves and 99 trillion cubic feet of natural gas reserves in 2010, according to BP Plc. (BP/)

China surpassed the U.S. as the world’s largest energy user in 2010, Vietnam’s domestic gas is set to triple by 2025 and the Philippines wants to reduce its near-total reliance on imports. An agreement by the three nations to jointly explore parts of the sea unraveled in 2008.

Philippine President Benigno Aquino said in a May 4 interview that he’s open to an agreement with China that would allow companies to exploit oil and gas resources while the governments separately resolve border disputes. Cnooc last week invited Philex Mining Corp. (PX) Chairman Manuel Pangilinan to Beijing for talks on jointly exploring a disputed area in the sea that may contain the Philippines’ biggest gas field.

‘Friendly’ Talks

‘‘Discussions were friendly, constructive,” he told reporters in Manila yesterday. “We’re not closing our doors.”

That contrasts with diplomatic ties. Chinese Vice Foreign Minister Fu Ying summoned a Philippine diplomat over the territorial spat three times over the past two months, according to a May 7 statement from the ministry.

“Peace will be a luxury if tensions continue to rise,” the English-language Global Times, a pro-Communist Party newspaper, said in an editorial yesterday. “Under the circumstances, the Philippines needs to be taught a lesson for its aggressive nationalism.”

The Philippines and Vietnam have increased defense ties with the U.S. while rejecting China’s nine-dash map of the South China Sea as a basis for joint development. China has repeatedly called for shelving disputes in favor of working together to exploit the resources, with the latest appeal coming from Foreign Minister Yang Jiechi in March.

Aquino has sought bids to develop two areas in the South China Sea claimed by China, though he has yet to receive any ahead of the July 31 deadline, Energy Secretary Jose Almendras said on May 4. Vietnam objected in March to Cnooc’s plans to bid out Block 65/24, which sits one nautical mile from the Paracels.

China ousted Vietnam from the 30 islets and reefs that comprise the Paracels in a 1974 battle in which 71 soldiers were killed. The countries also dispute the Spratly Islands further to the south, an area near where fellow claimant the Philippines is seeking to develop offshore exploration blocks.

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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