Maritime disputes stall planned oil exploration in S China sea

By Dario Agnote and Ronron Calunsod, Kyodo

Posted at Jan 18 2013 10:03 AM | Updated as of Jan 18 2013 06:07 PM

MANILA - Maritime disputes continue to stall plans to start offshore oil and natural gas drilling activities off the Philippines' Palawan Province in the South China Sea, an investor said Thursday.

"The commercial venture is caught up in the geopolitics of the situation," Manuel Pangilinan, chairman and CEO of Philex Mining Corp., said. "It is caught up as well in the policy issues of several governments, basically China and the United States."

The Philippine government has awarded the right to explore for oil and natural gas deposits on Reed Bank, known as Recto Bank in the Philippines, in the South China Sea off northwestern Palawan, but the awarding has drawn protests from claimants including China, Vietnam and Taiwan.

Pangilinan, whose firm has discussed a possible partnership with China National Offshore Oil Corp. to develop a potential oil and gas field in the disputed sea, said the commercial venture is facing yet more delays due to "sovereignty issues."

"We are trying to arrive at a structure that can accommodate two things: the very basic terms of any potential arrangement with CNOOC, because if you cannot agree commercial terms, there's no point in talking about sovereignty, at least from our side," he said. "If there is basis for moving forward on the commercial arrangements with CNOOC, then I think that's where the sovereignty issue will be addressed. If they are not addressed properly by both governments, then there is no deal as well."

"I think it's difficult to give some amount of certainty as to when we can actually do some work out there," Pangilinan said, adding "a great deal of it depends on what China says in respect of commercial arrangements."

Pangilinan said he expects talks with CNOOC to be "rather difficult" on issues such as profit-sharing.

In October, Pangilinan said plans to send an unarmed survey vessel to the area to establish the baseline features and test the stability of the seafloor in preparation for the placement of an oil rig planned for either March or April this year failed to move ahead.

"We were supposed to have scheduled the drilling in March or April. So we're delayed, yes. So we've requested for an extension of our work program," he said.

Talks between Pangilinan's firm and CNOOC are expected to begin early this year, but Pangilinan said discussions have yet to take place.

Other firms, including from the United States, have also shown "soft interest" in the project.

But Pangilinan said, "I think at the moment the discussions have to center between (our firm and CNOOC.) We don't want to be talking to anyone apart from CNOOC."

And the plan might hit another snag in coming months.

Philippine President Benigno Aquino has said he is open to the idea of a Chinese company joining an oil and gas exploration in Reed Bank.

He made it clear, however, that the Chinese firm must comply with Philippine laws, saying Reed Bank is part of the Philippine territory.

"We're talking about Recto Bank here. We can't split Recto Bank with them. Recto Bank is ours. If they want to join, why not? We're open to investors, but they should comply with our laws," Aquino said in a radio interview last week.

In March 2011, the Philippine military said two Chinese gunboats "harassed" a Philippine-commissioned oil exploration ship in Reed Bank about 85 nautical miles from the nearest coast of Palawan that energy officials believe holds 3.4 trillion cubic feet of gas and 440 million barrels of oil.

The incident prompted the military to dispatch a bomber and light aircraft to the area.

A number of similar incidents have happened since then.

A war of words between Manila and Beijing ensued as a result of the incidents, provoking the Philippines to build up its military capability.

Negotiations are under way to acquire newer patrol ships and long-range patrol aircraft to boost territorial defense.

Aquino has stressed that Reed Bank is not part of the disputed Spratly islands in the South China Sea being claimed entirely by China, Taiwan and Vietnam and in part by Brunei, Malaysia and the Philippines.