China's award of an exploration cooperation contract in the Nansha area of the South China Sea has revived territorial disputes in the area centering on the Spratly and Paracel islands.
The key dispute is between China and Viet Nam, which earlier engaged in military action over ownership of the islands believed to have world class potential for hydrocarbon discoveries.
Those two nations, as well as Brunei, Malaysia, Philippines, and Taiwan, lay claim to overlapping boundaries of the Spratly Islands. Separately, China and Viet Nam dispute territorial claims in the Paracels.
Tensions continue to mount, and regional governments are trying to negotiate compromises to avoid a repeat of warfare.
CRESTONE BLOCK
China National Offshore Oil Corp. (Cnooc) and Crestone Energy Corp., Denver, at the end of May signed a cooperation contract to jointly explore the 25,155 sq km Wan'an Bei-21 block in the Nansha area of the southwest portion of the South China Sea (OGJ, June 1, p. 45).
Cnooc is to provide seismic and other data covering the contract area, which lies in 300-700 m of water 1,764 km south-southwest of Hong Kong. Crestone will cover all costs and conduct seismic surveys and drilling in the area. Cnooc did not disclose the amount of investment expected for the joint venture.
Exploration is not expected to get under way until late 1994, said Crestone Pres. Randall Thompson.
Geological surveys by the Chinese Ministry of Geology and Mineral Resources and the Chinese Academy of Sciences led to speculation the Nansha area could contain hydrocarbon resources of as much as 70 billion bbl of oil equivalent.
CONTRACT DISPUTED
Viet Nam has called on China to rescind its contract with Crestone.
Hanoi demanded the deal be scrapped, saying the area is in its exclusive economic zone just west of the Spratlys. The Vietnamese government accused China of infringing upon its territory and breaking international law as a result of the contract.
Hanoi said it will "resolutely" defend its maritime boundaries and potential resources of its continental shelf while seeking to establish with China and other Southeast Asian nations "a trusting and cooperative atmosphere on the basis of mutual respect for independence, sovereignty, and territorial integrity."
Crestone, reportedly eyeing potential world class prospects, secured legal opinions in support of China's claims. Beijing said China's navy will defend Nansha drilling operations against possible Vietnamese attacks.
China and Viet Nam fought a naval battle over the Spratlys in 1974 after the crumbling Saigon government allowed western oil companies to conduct exploration there. The two nations skirmished again in the area in 1988.
SOURED RELATIONS
The territorial issue is proving a prickly one for Hanoi, which is seeking to improve relations with China and the U.S.
U.S. State Department spokeswoman Margaret Tutwiler acknowledged that a U.S. embassy official had attended the Crestone contract signing ceremony in Beijing. She stressed the official's presence should not be interpreted as support for Chinese territorial claims in the South China Sea and said the embassy had no role in the matter.
China, which claims sovereignty essentially over the entire South China Sea, said it won't turn a blind eye to foreign companies conducting exploration and development in South China Sea waters claimed by other countries. That was the gist of a law Beijing passed in February staking its claim to territory in the region.
However, Chinese President Yang Shangkun, visiting heads of state in Southeast Asia, offered to put aside the dispute and asked the other territorial claimants to join with China in petroleum exploration and development in the area. At the same time, he said, China will continue to defend its interests.
The six claimants earlier had agreed to defer development in the area until their disputes are resolved. The Crestone contract marks the first time in many years any of the claimants has taken steps unilaterally to exploit the area's postulated resources.
SOLUTIONS SOUGHT
Asian nations disputing ownership of the South China Sea islands were urged late last month at a workshop in Yogyakarta, Indonesia, to freeze their respective territorial claims and peacefully resolve any potential conflict, French news agency Agence France Presse (AFP) reported.
What's needed to stem mounting tension, said Indonesian Foreign Minister Ali Alatas, is a consultative or semiofficial forum among governments to defuse potential conflicts in the region.
Most of the six claimants have military garrisons on the Spratlys, and Malaysia's King Sultan Azlan Shah recently reasserted his country's claim by inspecting troops stationed on one of the islands, AFP said.
Participating in the workshop with the six Spratly claimants were Indonesia, Laos, Singapore, and Thailand.
SOUTH CHINA SEA OPERATIONS
There is a great deal at stake for claimants to the potentially hydrocarbon rich South China Sea, a fact underscored by recent successes in the region.
The six claimants have occupied 44 of the 51 islands in the sea, developing 29 oil fields and four gas fields in the South China Sea since the 1950s.
Malaysia, the earliest oil operator in the sea, is producing oil from 90 wells, about half the offshore region's total active wells. It tentatively plans to spend $210 million for South China Sea development the next 3 years.
Brunei operates nine oil fields in the South China Sea, where it produces about 143,000 b/d and is targeting a jump in production this year (OGJ, June 1, p. 34).
Although Philippines produced less than 3,000 b/d in 1991, recent discoveries by units of Royal Dutch/Shell Group and Alcorn International off Northwest Palawan Island augur well for a substantial jump in oil production this decade (OGJ, June 8, p. 33). There have been only seven wells drilled in the 26,000 sq km Philippines sector of the South China Sea.
Viet Nam has suddenly emerged as an oil producer to reckon with, with its offshore production recently outstripping that of China's.
Viet Nam's sole oil production comes from White Tiger field, which lies about 400 km west of the Crestone block. White Tiger flow averaged 76,712 b/d in 1991 and is believed to have reached 81,667 b/d the first 2 months of this year. Hanoi recently stepped up leasing in the South China Sea, opening highly prospective acreage to foreign exploration and development of Big Bear oil field, southwest of White Tiger, to foreign participation (OGJ, June 22, p. 38).
Last year Viet Nam spent $63 million of its own funds and $26 million in bank loans for oil exploration and development in the South China Sea. Earlier this year, eight countries extended bank loans totaling $80 million to Viet Nam for offshore oil exploration.
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