China Offers Oil-Exploration Blocks Near Disputed Waters

China National Offshore Oil Corp. offered foreign companies oil and gas blocks that lie near waters also claimed by Vietnam and Japan as tensions flare among the countries over rights to resources in the area.

The state-owned oil and gas explorer put up 26 blocks in this year’s second round of auctions, according to a statement dated yesterday on the Beijing-based company’s website. A site known as 65/12 is within 50 kilometers (31 miles) of the Paracel Islands in the South China Sea near a block put up for bid last year that prompted a protest from Vietnam.

The offer by China’s biggest offshore energy company comes as tensions rise among Asia’s biggest economies following moves to assert sovereignty over disputed islands that are potentially rich in energy resources. Assailants in Beijing yesterday blocked an official car carrying the Japanese ambassador to China and snatched the Japanese flag from the vehicle, according to Chief Cabinet Secretary Osamu Fujimura.

“China must assert its sovereignty over these blocks as preliminary geological assessments suggest huge oil and gas exploration potential,” Gordon Kwan, the Hong Kong-based head of regional energy research at Mirae Asset Securities Ltd., said in an e-mail. “China’s rising global dominance can fend off any political or military challenges that could come” because of the new tenders, he said.

Paracel Islands

The round of auctions will include 22 blocks for joint development in the South China Sea, according to the statement. Three are in the East China Sea and one is in northern China’s Bohai Bay.

Block 65/12 is near Block 65/24, which Vietnam singled out in a March statement as violating its sovereignty. The area sits one nautical mile from the Paracel Islands, which China and Vietnam fought over in 1974.

In June, China invited foreign companies to explore nine blocks to the east of Vietnam in areas that Hanoi’s leaders have already awarded to companies including Exxon Mobil Corp. (XOM) and Russia’s OAO Gazprom. Vietnam’s state-run oil explorer called on China to cancel the tenders.

Claimants have moved to assert administrative control over islands in the South China Sea, with Vietnam passing a maritime law in June and China planning to set up a military garrison on one of the Paracels. Vietnam, China, Malaysia, the Philippines, Taiwan and Brunei also claim rights to some or all of the Spratly Islands further to the south.

Japanese Spat

One of the blocks offered in this round, known as 41/08, is within 200 kilometers of the island group in the East China Sea that China names Diaoyu and Japan calls Senkaku, according to the map in the statement. It appears to fall west of an overlapping claims area between the two countries.

The attack on the Japanese envoy’s car came days after protests erupted in China during tit-for-tat visits to the islands by activists from both sides.

The isles have been a flash point between the world’s second and third-largest economies, underlined by a 2010 collision between a Chinese fishing vessel and Japanese Coast Guard ships that damaged political ties for months.

China National Offshore, the parent company of Hong Kong- listed Cnooc Ltd. (883), said it has conducted some seismic tests in all 26 blocks, and has drilled test wells in all but seven of the areas.

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at bchua14@bloomberg.net; Jing Yang in Shanghai at jyang251@bloomberg.net

To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net

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