Filipino, China oil firms eye deal in disputed sea

MANILA, Philippines (AP) A Filipino-British company has begun talks with China's state-owned offshore oil producer for an oil- and gas-exploration deal in part of the South China Sea where Philippine and Chinese vessels were involved in a confrontation just two and a half years ago.

If a deal is struck, it would be the first between China and the Philippines involving territory in the sea that both countries claim.

Philippine Energy Secretary Jericho Petilla said Wednesday that talks between Forum Energy plc and China National Offshore Oil Corporation, or CNOOC, to develop an area of the Reed Bank were at a preliminary stage. Both China and the Philippines would have to approve a deal, but Petilla expressed hope that a commercial agreement could be reached despite the long-raging disputes over the Reed Bank, a vast offshore area claimed by both countries.

The majority owner of London-based Forum is a Philippine energy company, Philex Petroleum Corp. The talks were being held abroad, most recently in Hong Kong, Petilla said.

The alternative to entering into a business partnership "is not to drill probably forever." Petilla said.

President Benigno Aquino III told foreign correspondents that any such deal with China would have to conform to Philippine laws. The Reed Bank, northwest of the Philippine province of Palawan, lies clearly within the Philippines' exclusive economic zone, Aquino said.

Territorial spats between China and the Philippines over parts of the South China Sea have worsened in recent years, straining ties.

Chinese ships tried to drive away a Philippine exploration vessel at the Reed Bank in March 2011. A Philippine general deployed two air force planes but the Chinese patrol ships had left by the time the aircraft reached the contested area.

The territorial conflict has hampered oil exploration in the offshore area, Petilla said, but he added that the Philippines needed to find a way to tap its potentially huge oil and gas deposits to meet his country's growing energy demand. Natural gas deposits at a nearby offshore field called Malampaya are expected to run out in 2024, he said, adding that it takes about a decade to develop such a gas field.

China and the Philippines, along with Brunei, Malaysia, Taiwan and Vietnam, have been contesting ownership of mostly barren islands, islets, reefs and surrounding waters in the South China Sea for years. There have been fears that the disputes could spark Asia's next major armed conflict and block free passage in the busy sea lanes, where the bulk of the oil and cargo that fuel Asia's bustling economies are transported.

This year, Aquino's government challenged Beijing's claim over virtually the entire South China Sea before an international arbitration tribunal. Aquino canceled a publicly announced trip to China to attend a trade fair last month after Chinese diplomats demanded that his government withdraw the legal challenge, Philippine officials said.

Aquino said Wednesday that he briefly met Chinese Premier Li Keqiang on the sidelines of a Southeast Asian summit in Brunei two weeks ago and discussed the territorial rifts.

"We still maintained both our positions," Aquino said. "But at least we're talking."