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Vietnam Warns China to Halt Oil Bids in Exxon-Awarded Area

Vietnam’s state-run oil explorer warned China to halt efforts to develop disputed areas of the South China Sea that Hanoi’s leaders have already awarded to companies including Exxon Mobil Corp. (XOM) and OAO Gazprom.

Vietnam Oil & Gas Group, also known as PetroVietnam, will ask China National Offshore Oil Corp., the government-owned parent of Cnooc Ltd. (883), to cancel an invitation for foreign companies to explore nine blocks, Chief Executive Officer Do Van Hau told reporters in Hanoi yesterday. PetroVietnam and its partners will continue exploring in the area and asked foreign companies not to bid for the nine blocks, he said.

PetroVietnam will “unwaveringly oppose” any foreign companies that sign contracts with China to explore for oil in the nine areas, Hau said. “The Vietnamese government will not allow any implementation of these exploration activities.”

The tender threatens to escalate tensions after Chinese vessels last year cut the cables of a PetroVietnam survey ship and chased away a boat in waters delimited by the Philippines. The blocks are the southernmost put out for bid by China in about two decades, according to Arthur Ding, a research fellow at the Institute of International Relations in Taiwan.

“This is one way for China to assert its maritime territory,” he said by phone. “There’s probably more to come. Domestic pressure was building up so they had to do something.”

The state-run company deployed China’s first deep-water drilling rig last month near disputed islands. The blocks, covering an area of 160,124 square kilometers, are available for exploration and development with foreign companies this year, according to a June 23 statement on the company’s website.

Gazprom, Exxon

China’s blocks overlap with Vietnamese areas that have been awarded to Exxon, Moscow-based Gazprom (OGZD), India’s Oil & Natural Gas Corp. and Talisman Energy Inc. (TLM), according to a PetroVietnam map shown to reporters in Hanoi.

Exxon referred calls to U.S.-based spokesman Patrick McGinn, who didn’t immediately reply to an e-mail sent after office hours.

The invitation for bids came as Vietnam’s parliament passed a law reasserting its sovereignty over the area. China summoned Vietnam’s ambassador June 21 to protest the move, with Vice Foreign Minister Zhang Zhijun saying Vietnam’s actions weren’t “conducive to peace and stability.”

Not Disputed

China hopes Vietnam will “not take actions that will amplify or complicate the dispute,” Foreign Ministry spokesman Hong Lei said yesterday in Beijing. “At the same time, Vietnam should stop its activities that infringe upon China’s rights and interests.”

The area “lies entirely within Vietnam’s 200-nautical mile exclusive economic zone and continental shelf,” Luong Thanh Nghi, a spokesman for the Ministry of Foreign Affairs, said in comments posted on its website June 25. “This is absolutely not a disputed area.”

The region is estimated to have as much as 30 billion metric tons of oil and 16 trillion cubic meters of gas, which would account for about one-third of China’s oil and gas resources, according to the Xinhua News Agency. 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/) estimates.

The Philippines and Vietnam have increased defense ties with the U.S. while rejecting China’s map of the South China Sea as a basis for joint development. China this week repeated its call to shelve disputes in favor of working together to exploit the resources.

‘Hopeful’ Diplomacy

“We support a peaceful process,” U.S. Assistant Secretary of State Kurt Campbell told a forum in Washington yesterday, according to a transcript of his remarks. “Behind the scenes we’ve seen some recent diplomacy that is hopeful.”

The location of the blocks indicates that China claims the maritime spaces within its so-called nine-dash map of the sea, a development that will further alarm claimant states, according to Clive Schofield, director of research at the Australian National Centre for Ocean Resources & Security.

“There are highly likely to be future clashes should there be actions taken by any of the countries concerned to try and explore within those blocks,” he said. “The designation of blocks is in a sense a proxy way of states trying to reinforce their jurisdictional rights.”

In 1992, China awarded Crestone Energy Corp. a block off Vietnam’s southern coast that is now owned by Houston-based Harvest Natural Resources Inc. (HNR) Talisman, an oil and gas producer with operations in North America, the North Sea and Indonesia, owns the rights for Vietnam.

More Patrols

Routine patrols in the area by China’s maritime surveillance ships coupled with China National Offshore’s enhanced ability to operate in deeper waters has emboldened the country to assert its claims in the area, according to Gary Li, head of marine and aviation forecasting at Exclusive Analysis Ltd., a London-based business advisory firm.

“The Chinese in the next six months are very likely to demonstrate to potential partners their ability to muscle in on these blocks,” he wrote. “So expect more patrols, high profile propaganda announcements and puff pieces on Cnooc personnel.”

To contact the reporter on this story: Bloomberg News in Hanoi at emailtv@bloomberg.net

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

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