China and Philippines are reported to be moving closer to a deal to jointly explore oil and gas in disputed waters in the South China Sea, leaving aside sovereignty disputes, writes Xu Yihe.

Harry Roque, spokesman of Philippines President Rodrigo Duterte, said that any potential exploration deals between the two countries should be carried out on a company-to-company basis.

Industry officials suggested that Philippine National Oil Company (PNOC) and China National Offshore Oil Company (CNOOC) are now involved in discussions about joint exploration of two blocks, one in Service Contract 72 at the disputed Reed Bank area and the other in non-disputed SC 57.

“We might enter into an agreement with a Chinese-owned corporation, not the Chinese state itself,” Harry Roque told local media, adding that in exploring SC 57, the Chinese company should comply to the Philippine rules as it falls into its exclusive economic zone (EEZ).

However, the same does not apply to SC 72 as there is an ongoing dispute in this area between the Philippines and China, Roque acknowledged.

Awarded to Sterling Energy Ltd in June 2002, the 8800-square kilometres SC 72 is in the West Philippine Sea, west of Palawan Island and southwest of the Shell-operated Malampaya gas field.

The Philippines pursued international arbitration over territorial disputes with China and in 2014 suspended exploration in the Reed Bank, where PNOC, CNOOC and state-owned PetroVietnam carried out a joint 2D seismic survey, called a Joint Marine Seismic Undertaking (JMSU), over an area of about 143,000 square kilometres in 2005.

The survey was carried out by the vessel Nan Hai 502, owned by China Oilfield Service Ltd and data was interpreted by PetroVietnam.

At the time it was considered a major step towards potentially transforming a previous area of conflict into an area for potential co-operation.

They added that the latest approach by the Philippines is in line with Chinese standing policy of seeking joint exploration in the disputed waters of the South China Sea while setting aside the dispute.

China claims most of the South China Sea, which is a key route in global trade and potentially resource-rich territory, and parts of which are subject to competing claims by Brunei, Malaysia, Vietnam and the Philippines.

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Progress in South China Sea