JOINT SEISMIC SURVEY IN SOUTH CHINA SEA MAKES

C O N F I D E N T I A L SECTION 01 OF 02 MANILA 004848

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/30/2016
TAGS: PREL PBTS BTIO EPET ECON CH VM RP
SUBJECT: JOINT SEISMIC SURVEY IN SOUTH CHINA SEA MAKES
PROGRESS

REF: 04 MANILA 05826

Classified By: Pol/C Scott Bellard, reasons 1.4 (b) and (d)


1. (C) Summary: The first phase of a joint seismic survey
for hydrocarbon deposits undertaken by the national oil
companies of the Philippines, China, and Vietnam in an
143,000 square kilometer zone of the South China Sea is near
completion. After its partners conducted a "reconnaissance"
survey of the entire zone, the Philippine National Oil
Corporation is now interpreting the initial survey data,
which it expects to finish by the end of the year. Promising
areas identified in the first phase will be surveyed again
more closely in the second phase. If viable deposits are
ultimately found, a new agreement would be needed to cover
any joint development, which Philippine sources predicted
would be reserved for the three national oil companies. The
joint seismic survey offers a good model for potential
subsequent cooperation on exploration and exploitation, and
fits neatly with Philippine goals of increased interaction
between ASEAN and China and the promotion of confidence
building measures. The true test of the cooperative spirit,
however, will come when the parties may contemplate
extraction. End Summary.


2. (C) On November 28, Raymundo Savella, Exploration Manager
of the Philippine National Oil Company (PNOC),described to
poloff recent progress on the joint seismic survey for
hydrocarbon deposits in the South China Sea (the "Joint
Marine Seismic Undertaking") by Petro Vietnam, the China
National Offshore Oil Corporation, and PNOC. (Reftel
described the genesis of this agreement during a September
2004 visit to Beijing by President Gloria Macapagal Arroyo.
Initially between only China and the Philippines, Vietnam
also signed on to the agreement in March 2005.) The
"Tripartite Agreement," as it is also called, covered
surveying activities only in an area north of the Philippine
island of Palawan, encompassing much of the disputed areas
around the Spratly Islands. It outlined three phases: an
initial "reconnaissance" survey of the entire 143,000 square
mile zone; a subsequent more detailed survey of the most
promising areas; and, eventually, identification of possible
drilling targets. Savella also explained how the three
companies are sharing the workload. China provided the
survey ship. Vietnam processed the raw data. The
Philippines interpreted the data. Savella predicted that the
PNOC will complete its interpretation of the first phase data
by the end of the year.


3. (C) Any future joint extraction of oil would
necessitate a new agreement among the three parties, Savella
confirmed, while warning that negotiating such an agreement,
"when you can actually smell the oil" could draw political
opposition within the Philippines. He acknowledged a concern
here that China stood to benefit disproportionately from the
project because of its greater capacity to extract oil and
because of the relative inexperience of the Philippine oil
industry. He commented that the issue of national
sovereignty would likely come to the fore when contemplating
actual exploitation.


4. (C) In a separate conversation, former PNOC President
Eduardo Manalac (who presided over the inception of the joint
survey) predicted that any future exploitation contracts
would not be open to foreign corporations and that the three
countries will likely "try to go on their own." He opined
that China might, however, even agree to fund Philippine
wells with concessionary loans.


5. (U) During her October visit to China for the ASEAN-China
Commemorative Summit, President Arroyo publicly underscored
the importance of the joint survey. She noted that "it is
really considered a diplomatic feat we were able to get the
three countries together to work on the joint research." She
separately stated that "now that joint seismic research has
been done, and the findings are being collated, if warranted
we should consider having joint exploration in the South
China Sea."


6. (C) Comment: Much work remains to be done and many
potential pitfalls loom as the three nations look for new
deposits in this area of overlapping and often-contested
claims. The joint seismic survey nonetheless offers a good
model for potential subsequent cooperation on exploration and
exploitation, and fits neatly with Philippine goals of
increased interaction between ASEAN and China, the promotion
of confidence building measures, and the elimination of
territorial claims as a source of regional tension. The true
test of the cooperative spirit, however, will come when the

MANILA 00004848 002 OF 002


parties may contemplate extraction.


Visit Embassy Manila's Classified website:
http://www.state.sgov.gov/p/eap/manila/index. cfm
KENNEY