Accessibility links

Breaking News

How China’s Offshore Oil Driller Will Keep Grip in Disputed Sea Despite US Sanctions

FILE - An oil platform operated by China National Offshore Oil Corporation (CNOOC) is seen in the sea off China's southernmost Hainan province, March 23, 2018.
FILE - An oil platform operated by China National Offshore Oil Corporation (CNOOC) is seen in the sea off China's southernmost Hainan province, March 23, 2018.

The United States imposed sanctions this month on a major Chinese offshore oil driller that Washington considers aligned with the Chinese military. But some regional experts say the oil and gas company, which counts U.S. citizens among its investors and does billions of dollars of work including in the contested South China Sea, will find ways to remain China’s commercial flagbearer.

The U.S. government on December 3 banned U.S. citizens and companies from trading shares of China National Offshore Oil Corporation (CNOOC) following an executive order from the White House in November. Washington sees CNOOC as the Chinese government’s military partner. It’s the first oil and gas company on a long-standing list of 35 Chinese firms facing the same sanctions.

Analysts say CNOOC’s American investment, estimated by financial media outlets at 16 percent, won’t slow the company, which has more than $33 billion in annual sales. They suggest the state-run firm with a publicly traded subsidiary will find other funding sources, including the Chinese government. Oil rig equipment and supplies can be found largely outside the United States, said Alexander Vuving, professor at the Daniel K. Inouye Asia-Pacific Center for Security Studies in Hawaii.

It’s also unclear whether U.S. President-elect Joe Biden will toughen the sanctions, said Mark Valencia, an adjunct senior scholar at China’s National Institute for South China Sea Studies.

Ultimately CNOOC will keep its prowess as an extension of Beijing’s influence over the contested 3.5 million-square-kilometer South China Sea stretching from Hong Kong, the analysts say. Brunei, Malaysia, the Philippines, Taiwan and Vietnam have claims in the same sea, which is rich in fossil fuel reserves.

“CNOOC is not just a company, but it’s also on the forefront of China’s sovereignty struggles, sovereignty combat, against the other countries,” Vuving said.

US Department of Commerce adds 24 Chinese firms to a list subject to export restrictions

U.S. President Donald Trump said his sanctions order aims to restrict the reach of Chinese firms with military ties.

“Through the national strategy of military-civil fusion, the PRC increases the size of the country’s military-industrial complex by compelling civilian Chinese companies to support its military and intelligence activities,” Trump said.

“At the same time, those companies raise capital by selling securities to United States investors that trade on public exchanges both here and abroad, lobbying United States index providers and funds to include these securities in market offerings, and engaging in other acts to ensure access to United States capital,” he said.

CNOOC particularly alarms Vietnam as a fellow explorer of undersea oil and gas in the disputed waterway. In 2014 an oil rig authorized by the Chinese driller in waters east of Vietnam touched off a boat-ramming incident and deadly anti-China rioting. Chinese survey ships in the past two years passed near Vietnamese exploration sites, causing an outcry in Hanoi.

China claims about 90% of the sea and has a military edge over the other countries. Chinese armed forces, already the world’s third strongest, got unique access to the sea after 2017 when China finished landfilling tiny islets and equipping some with military hardware.

The White House National Security Advisor says the fleet would take on the 'harassment of vessels operating in the exclusive economic zones of other countries in the Indo-Pacific'

But U.S. sanctions could hurt CNOOC mainly “in terms of prestige,” Vuving said.

They would reduce stock value and “severely damage the company’s reputation,” Valencia said in an Asia Times commentary Monday. CNOOC may need to split up or terminate some businesses, he said.

CNOOC has also reached out to cooperate with other countries in the South China Sea, a boon to partners with less money or technical expertise. In September, for example, the driller offered 19 offshore blocks in the South China Sea for joint exploration with foreign companies, covering 52,000 square kilometers, market analysis firm S&P Global said.

At stake now is joint exploration that China and the Philippines intend to pursue through a deal signed two years ago, said Carl Thayer, a University of New South Wales emeritus professor who specializes in Southeast Asia.

“The big deal I think is really where does this service contract with the Philippines get finalized,” he said.

U.S. sanctions are supposed to “pressure against awarding contracts” between China and other countries, said Jay Batongbacal, international maritime affairs professor at University of the Philippines. But if CNOOC is hobbled, he said, China can find another company for exploration with the Philippines.

“That can easily be done, especially on the part of the Chinese,” Batongbacal said. “They can set up another company or they can use any Chinese-owned company that’s other than CNOOC.”

CNOOC did not respond to a VOA request for comment.