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Exclusive: As Rosneft's Vietnam unit drills in disputed area of South China Sea, Beijing issues warning

Reuters  |  HANOI 

By James Pearson

(Reuters) - Rosneft BV, a unit of Russian firm Rosneft, is concerned that its recent drilling in an area of the Sea that is claimed by could upset Beijing, two sources with direct knowledge of the situation told on Wednesday.

Rosneft said on Tuesday its Vietnamese unit had started drilling at the LD-3P well, part of the Do "Red Orchid" in Block 06.1, 370 kms (230 miles) southeast of The block is "within the area outlined by China's nine-dash line," according to consultancy and research firm

When asked about the report of the drilling, China's foreign ministry said that no country, organisation, company or individual can, without the permission of the Chinese government, carry out exploration or exploitation activities in waters under Chinese jurisdiction.

"We urge relevant parties to earnestly respect China's sovereign and jurisdictional rights and not do anything that could impact bilateral relations or this region's peace and stability," the spokesman, Lu Kang, told a regular briefing on Thursday.

Vietnam's foreign ministry said its activities are conducted in accordance with the 1982 U.N. Convention on the Law of the Sea.

"As we have repeatedly asserted, all of Vietnam's maritime economic activities, including activities, have been licensed and carried out in maritime zones entirely under Vietnamese sovereignty and jurisdiction," Le Thi Thu Hang said in a statement in response to a request from for comment.

China's U-shaped "nine-dash line" marks a vast expanse of the Sea that it claims, including large swathes of Vietnam's Exclusive Economic Zone. Maps of the area indicate the block is around 85 kms (53 miles) inside the contested area.

A series of dashes, the line is not continuous making China's claims often ambiguous. In recent years, though, China has increasingly patrolled and enforced the area, claiming historic rights to the resources and features within it.

In March, halted an in the nearby "Red Emperor" block following pressure from China, sources told Reuters.

That block is licensed to Spanish firm Repsol, which has asked Vietnam to pay compensation over the issue.

Rosneft had no consultations with the on drilling in the Sea, said on Thursday.

"As far as we know, the company has already made a statement that it works exactly in line with the obtained licenses," Peskov told a regular conference call with reporters.

Fearing repercussions and pressure from China, Rosneft Vietnam had wanted to begin drilling with as little attention as possible, despite the statement by its parent company on Tuesday, the sources said.

On Thursday, its parent company said its drilling in the block was within Vietnam's territorial waters, and in accordance with Vietnamese legislation.

WARNED OVER PRODUCTION

Both Rosneft and Russia's have significant development projects in Vietnamese waters that fall within the area claimed by China, said Ian Storey, a regional security expert at

"Although Russian diplomats have privately expressed concerns to their U.S. counterparts that China may one day put pressure on to terminate those projects, so far has refrained from doing so because of the ever-closer strategic partnership between the two countries," said Storey.

"It would be a serious blow to the burgeoning Sino-Russian entente if asked to end its projects in Vietnam."

China has become Russia's top destination for exports, largely because is the largest supplier of oil and gas to China, mainly through pipelines.

The drilling in the "Red Orchid" within the block will be undertaken using the "Hakuryu-5" equipment made by Japanese company Japan Drilling Co., Ltd, Rosneft said in that statement.

The Hakuryu-5 arrived in the disputed area on May 6, according to Eikon ship tracking data and was still recorded as being inside the block late on Wednesday.

The drilling is significant for Vietnam, which has been struggling to maintain its crude amid already declining production from its key fields and the continuing pressure from China in the disputed waters.

Vietnam already gets about 30 percent of its gas needs from block 06.1 because of that were first established there more than 15 years ago. The block is operated by Rosneft and jointly owned by India's , Rosneft, and

It lies just south of blocks 05.3 and 05.2, where in 2007 suspended work following a threat of "economic consequences" from China, according to a September, 2007 U.S. State Department cable leaked by WikiLeaks.

In April, Vietnam's firm said that maritime tensions with China will hurt its offshore exploration and production activities this year.

and have long been embroiled in disputes over the maritime boundary, which is a politically sensitive issue in Vietnam.

Police in the central province of have launched an investigation into a group of Chinese tourists who were pictured in a local airport wearing T-shirts printed with a map showing the "nine-dash line", reported on Wednesday.

Airport authorities asked the tourists, who arrived at on Sunday, to take off their T-shirts after going through customs, the Van Hoa (Culture) newspaper reported.

(Additional reporting by in HANOI, Greg Torode in HONG KONG, Christian Shepherd in BEIJING and Andrey Ostroukh in MOSCOW; Editing by Martin Howell)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Thu, May 17 2018. 19:49 IST
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