Gone fishin’ means trouble ahead

By Eric Watkins

LOS ANGELES, April 11 – The South China Sea is fast becoming a hot spot for oil and gas explorers, with Italy’s Eni SPA the latest firm to sign an agreement – even as tensions in the region throw a cloud over prospects and prospectors.

Eni and China National Offshore Oil Corp (CNOOC) have signed a Production Sharing Contract (PSC) for the exploration of Block 30/27, which is situated 400km off the coast of Hong Kong.

“The Block, covering 5,130 square km in the attractive deep water of the South China Sea, has a high exploration potential,” Eni said, adding that the contract comprises the acquisition of a 3D seismic survey of 2,000 sq km, and the drilling of one well to be performed during the first exploration period.

Eni will be the operator of the project, with a 100% interest, while in the event of a discovery CNOOC has a back-in right of up to 51%.

Eni is hardly a stranger to the region.

SLIGHT TINGLE

Together with CNOOC and Chevron, Eni holds a 16.33% stake in two offshore Blocks in the South China Sea, with production of around 10,000 barrels of oil equivalent per day (boe/d).

Still, Eni investors may feel a slight tingle up the spine when they read reports of mounting confrontations in the South China Sea, with some observers worried about the possibility of armed conflict.

The latest incident coincided with the Eni announcement, when two Chinese marine surveillance ships engaged in a stand-off with a Philippines navy vessel in a disputed area in the South China Sea.

The incident took place in Scarborough Shoal, about 120 nautical miles west of the Philippines’ main island of Luzon, according to Albert del Rosario, the Philippine foreign affairs secretary.

The incident arose when a Philippine warship tried to detain eight Chinese fishing boats and arrest their crews for alleged illegal fishing in Philippine waters.

CHINESE SURVEILLANCE SHIPS

Two Chinese surveillance ships later moved in to protect the fishermen from what China called “harassment” by Philippine soldiers, and asked the Philippine navy vessel to leave the area, which is also claimed by China.

China has become increasingly assertive in pressing its claim to the entire South China Sea and has been accused by some of its neighbors of harassing other countries’ oil exploration ships in the region.

The incident off the Philippines is remarkably similar to one that took place last week in the waters off Palau, the island nation located about 500 nautical miles east of the Philippines and more than 2,225 nautical miles east of China.

Of possible interest is the fact that Palau’s authorities – like those in neighboring Philippines – recently authorized the search for oil and gas in the waters surrounding their island, as recently reported by WWE.

Also of interest is the fact that US is currently responsible for the defense of Palau, which gained independence in 1994.

ARMED CONFRONTATION

Palau’s confrontation – we should add “armed” confrontation – with China took place when a government boat apprehended a Chinese fishing vessel, which was suspected of fishing illegally in a conservation area.

That confrontation eventually led to the discovery of a larger Chinese mother ship, and the arrest of some 25 Chinese fishermen who had tried to flee after setting fire to their vessel, in the hope of destroying evidence of their activities.

Outwardly, they were “just fishing” – but such activities in waters far from China show an assertiveness that could be discomfiting to international oil companies that may be considering exploration activities in the region’s waters.

Then, too, China’s assertiveness comes just ahead of next week’s resumption of annual joint naval exercises off the Philippines’ western coast planned by Manila and Washington. Is China attempting to let everyone know who the big kid on the block really is?

GONE FISHIN’

“The biggest miscalculation of the Philippines is that it has underestimated the strength and willpower of China to defend its territorial integrity,” wrote Maj. Gen. Luo Yuan in a recent issue of China’s Global Times newspaper.

It sounds like the big kid plans to be reckoned with – something that could have an adverse effect on oil and gas exploration in the South China Sea and far beyond, if little Palau is any measure of China’s territorial yardstick.

“Gone fishin’ ” is a sign people used to hang up when business was done. These days, it’s a sign that someone actually means business. And surely, that’s a sign of trouble ahead.

© Glamma Productions 2012

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About Eric Watkins

Eric Watkins is a consultant specializing in oil diplomacy. A former journalist, Mr. Watkins's work has appeared in numerous leading publications including The Wall Street Journal, The Economist, The Financial Times, and specialist media such as Oil & Gas Journal, Middle East Economic Survey (MEES), and Lloyd's List.
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3 Responses to Gone fishin’ means trouble ahead

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