CNOOC, PNOC Sign Deal for E&P Study in Spratly Islands Area

China National Offshore Oil Corp. and Philippines National Oil Co. will sign a letter of intent late Monday to study the possibility of joint exploration and production in the Spratly Islands region and in the Philippines, a Manila-based industry official said Monday.

Located in the South China Sea, the Spratly Islands contain about 70 billion barrels of oil equivalent.

"We will sign the LOI tonight with CNOOC," a PNOC official said.

He said CNOOC and PNOC have agreed to study the possibility of exploring and developing "certain areas of the South China Sea and some areas in the Philippines."

"(The LOI) is the important start (of future cooperation in the upstream E&P)," he said. Monday, Philippine President Gloria Macapagal Arroyo met with the CNOOC delegation, led by company chairman Fu Chengyu. The delegation arrived in the Philippines last week for talks on E&P with PNOC in the Spratlys.

The letter of intent doesn't mean China has resolved the dispute with the Philippines on sovereignty over the Spratlys.

Last week, upon the arrival of the CNOOC delegation, Arroyo said China may have violated an international agreement that forbids building new structures on the disputed Spratly Islands.

She said she had directed the Department of Foreign Affairs and the Department of National Defense to raise the issue to the "diplomatic level" if needed.

According to Vice Admiral Ruben Domingo, chief of the military's Western Command, the Chinese have installed markers on shoals and reefs in uninhabited parts of the Spratlys, which are claimed by several countries, including China and the Philippines.

The talks between CNOOC and PNOC followed discussions held by China's parliament chairman Wu Bangguo and Philippine government officials in September.

During his visit, Wu proposed that China and the Philippines engage in joint exploration and production of oil and gas - a policy put forward by the Chinese government about 10 years ago, but which has been ignored by countries claiming sovereignty over the Spratlys, including the Philippines.

Developing oil and gas reserves in the Spratlys is in line with the Chinese government's energy policy, which places emphasis on E&P off Nansha island in the Spratlys as part of its strategy to ensure sufficient energy supply amid the country's rapid economic development and leveling off of domestic crude oil production.

The Spratlys have long been regarded as a potential flashpoint, with China, the Philippines, Malaysia, Brunei and Vietnam all claiming sovereignty over them. Last year, the 10 members of the Association of Southeast Asian Nations and China agreed to avoid any activities that could increase tensions in the Spratlys region.

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