The $839.9 million CNOOC 981 -- the country's first domestically manufactured deep-water drilling rig -- drilled its first well Wednesday.
The well, Liwan 6-1-1, is 199 miles southeast of the Hong Kong Special Administrative Region with a water depth of 1,500 meters, China Daily reports.
Li Jinming, a South China Sea expert at Xiamen University, told the Financial Times the drilling area is between the Paracel Islands, claimed by both China and Vietnam, and the Macclesfield Bank, claimed by China and Taiwan.
The 31,000-ton rig will drill the well for 56 days, then be towed to a drilling site in the Baiyun Depression, an area covering 7,725 square miles in the eastern part of South China Sea, said Shi Hesheng, chief geologist of the company's Shenzhen branch, China Daily reports.
Baiyun contains about 700 million metric tons of crude oil and 1.2 trillion cubic meters of gas, Shi said. CNOOC plans to have annual natural gas production of 10 billion cubic meters by the end of 2015 in deep-water areas in the eastern part of the South China Sea, he said.
Oil reserves under the South China Sea are estimated at 23 billion metric tons to 30 billion with natural gas reserves of 16 trillion cubic meters.
CNOOC said in 2014 it expects to bring into commercial production two more natural gas fields in the same area, Liuhua 34-2 and Liuhua 29-1.
"Large deep-water drilling rigs are our mobile national territory and strategic weapon for promoting the development of the country's offshore oil industry," state-run news agency Xinhua quoted Wang Yilin, CNOOC's chairman, as saying. He said the rig would help China secure energy resources in the waters.
"We will move forward in deep water through our independent exploration as well as through cooperation with foreign companies," Wang added.
The most recent South China Sea standoff began last month when the Filipino navy intercepted Chinese fishing vessels in Scarborough Shoal, a reef just west of Manila, claiming the fishermen were illegally operating in the Philippines' 200-nautical mile exclusive economic zone. Vessels from China's maritime surveillance unit positioned themselves between the Filipino navy and Chinese fishing vessels.
"Exploiting maritime resources in the South China Sea and sending fishing fleets there are effective ways to reinforce China's territorial claims in the region," Zhuang Guotu, director of Xiamen University's Center for Southeast Asia Studies, was quoted as saying in the Global Times, a pro-Communist Party newspaper.