* China energy firm CNPC says rig found signs of oil and gas
* Exploration finished on Tuesday -CNPC
* Vietnam coastguard says rig being moved toward China's
* Hanoi demands China keep rigs out of Vietnamese territory
* Rig's deployment caused breakdown in China-Vietnam ties
(Adds U.S. comment, paragraphs 5 and 6)
By John Ruwitch and Nguyen Phuong Linh
SHANGHAI/HANOI, July 16 A Chinese oil rig has
finished drilling near the disputed Paracel islands in the South
China Sea after finding signs of oil and gas and is being moved
away from the area, more than two months after its deployment
damaged relations with Hanoi.
The Vietnamese coastguard said the $1-billion rig had been
towed from contested waters. China's official Xinhua news agency
said the rig would be relocated off the southernmost island
province of Hainan. It gave no timeframe.
The rig's relocation could reduce tensions between the two
neighbours after one of the worst breakdowns in ties since they
fought a brief war in 1979.
Its movement toward Hainan was welcomed by Washington, which
had criticised China's decision to put the rig in waters
disputed with Vietnam, calling it a "provocative" act.
U.S. State Department spokeswoman Jen Psaki said the rig
incident had "highlighted the need for claimants to clarify
their claims in accordance with international law, (and) to
reach a shared understanding on appropriate behavior and
activities in disputed areas".
She reiterated a U.S. call for a voluntary freeze on
"provocative unilateral actions" to allow for implementation of
a 2002 agreement on maritime conduct.
Hanoi had said the rig was in its 200-nautical-mile
exclusive economic zone and on its continental shelf. Beijing
had said it was operating completely within its waters around
the Paracel islands, which China occupies.
China National Petroleum Corporation (CNPC), the country's
dominant oil and gas producer, said the rig "smoothly completed"
its drilling on Tuesday and found signs of oil and gas. The next
step would be to analyse the geological data and evaluate the
layers of oil and gas, it said.
CNPC's preliminary analysis showed "the area has the basic
conditions and potential for oil exploration, but extraction
testing cannot begin before a comprehensive assessment of the
data", Xinhua quoted Wang Zhen, deputy director of the CNPC
Policy Research Office, as saying.
China had previously said the rig was scheduled to explore
the waters around the Paracels until mid-August. It was not
clear why it had finished one month ahead of schedule, although
Xinhua said July was the beginning of the typhoon season.
China's popular Twitter-like microblogging service Weibo lit
up with criticism of the move. Many people said the government
had bowed to the United States, underscoring the domestic
pressure Beijing faces to be tough in its territorial disputes.
But China's Foreign Ministry said the decision was made in
accordance with commercial decisions and had "no relation to any
The government also insists the area belongs to China and as
recently as Tuesday told Washington to stay out of quarrels over
the South China Sea.
Wu Shicun, president of the National Institute for South
China Sea Studies, a Chinese government think tank on Hainan,
said he believed the rig completed its work ahead of schedule
because of good weather before the typhoon season began.
"The place has fairly good oil and gas potential. It looks
promising," said Wu, an expert on China's energy ambitions in
the South China Sea.
ACTION AT SEA
The rig was towed from its original position overnight to
beyond what Hanoi considers its exclusive economic zone,
Lieutenant-Colonel Ngo Minh Tung of the Vietnamese coastguard
told a small group of reporters on one of the maritime agency's
ships in the area.
"According to our assessment and the speed at which it was
moving, the rig has left Vietnamese waters," Tung said.
The coastguard would stay in the area to protect Vietnamese
fishing boats and the country's sovereignty, Tung added.
On Tuesday, the same coastguard vessel was chased off by a
group of Chinese ships in what had been a near daily
cat-and-mouse routine between boats from both sides since the
rig was deployed on May 2.
Vietnamese Prime Minister Nguyen Tan Dung demanded that
China not send any more rigs into Vietnamese waters.
The deployment was a major test for Dung, especially when
deadly anti-Chinese riots broke out in Vietnam in May,
triggering protests from China. Several people were killed.
The rig is owned by state-run China National Offshore Oil
Company Group (CNOOC Group), parent of flagship unit CNOOC Ltd
It is China's newest and most advanced rig, and can drill in
waters up to 3,000 m (9,840 ft) deep, about double that of the
other two rigs China uses for deep sea work, industry sources
China claims 90 percent of the South China Sea. Vietnam, the
Philippines, Malaysia, Brunei and Taiwan also claim parts of the
waters, whose estimated energy potential varies widely.
Discoveries near the coasts of Southeast Asian countries in
recent years have been mostly natural gas, reinforcing the
belief among geologists and explorers that there is more gas
than oil in the South China Sea.
Chinese industry experts have said the rig had a good chance
of finding enough gas to put the area into production. That
would give China its first viable energy field in the disputed
South China Sea, but make it a source of friction with Hanoi for
years to come.
The world's largest energy user imports nearly 60 percent of
its oil needs and more than 30 percent of its natural gas.
In a 2013 report, the U.S. Energy Information
Administration, a government agency, said geological evidence
suggested the Paracel islands themselves did not have
significant potential in terms of conventional hydrocarbons.
However, the chance of making a major gas discovery near the
islands was high because there had been several gas finds
already in the area, experts have said.
Vietnam has two fields to the left of where the rig had been
stationed, much closer to its coast, where U.S. giant Exxon
Mobil Corp discovered oil and gas in 2011 and 2012.
(Additional reporting by Michael Martina, Ben Blanchard and
Chen Aizhu in BEIJING, Charlie Zhu in HONG KONG, Ho Binh Minh in
HANOI, Martin Petty aboard Vietnamese Coastguard Ship 8003 and
David Brunnstrom in WASHINGTON; Writing by Dean Yates; Editing
by Paul Tait, Clarence Fernandez and Chizu Nomiyama)