China's Offshore Oil Driller Seen Winning Rights Dispute
CNOOC and its share prices will pull through.
The firm, whose acronym stands for China National Offshore Oil Corp., is on the prowl for proven undersea oil reserves estimated at 7.5 billion barrels. Its drilling site 320 kilometers southeast of Hong Kong effectively follows Beijing's unbending, sometimes belligerent claim to the South China Sea.
The search for South China Sea deposits, apparently also a first for Beijing, faces possible competition from PetroVietnam (HoSE) , which is run by the government in Hanoi and has started surveying. Vietnam claims the same 3.5 million-square-kilometer (1.4 million-square-mile) sea area, as does the Philippines. T Manila will give out 15 exploration contracts, including one to the British firm Forum Energy(FET) , the U.S. think tank Council on Foreign Relations says. But Malaysia is the most active of all claimants, owning half of a current total South China Sea production of 1.3 million barrels per day, according to research website GlobalSecurity.org.
About More Than Oil and Gas
What's going on at sea is more than a race for oil or gas. China and the Philippines entered a tense standoff in April when military and fishing boats met at a disputed shoal near Luzon Island. It's still not quite clear whose ships are where.
China and Vietnam verbally opened fire over sea rights before reaching a patchy deal last year. Those flaps raised fears of a broader war and generated keen interest from the United States, in turn angering China, which does not want to see the world's other superpower involved in anything off its south coast.
Economists warn that a skirmish -- real or diplomatic -- could suddenly shut down expensive efforts to find oil and gas deposits that are still tough to estimate despite some enticing numbers. Investors hate a war, or even the threat of war, so it could be argued that anyone exploring now will just end up taking a bath.
Mark Williams, chief Asia economist at Capital Economics in London, states the obvious: "Clearly the dispute adds another layer of risk in an industry where risks are already high. Oil and gas projects take years to deliver a return. The prospect that rigs may at some point end up caught in a standoff between two navies is likely to be a chilling one for prospective investors."