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(Image courtesy of PetroVietnam)

India and Vietnam have agreed to expand oil exploration in the disputed South China Sea, a move that will make China nervous.

During Vietnamese Communist Party general secretary Nguyen Phu Trong’s visit to India, the two nations have reached an agreement whereby Vietnam offered five oil blocks on nomination basis to India, including three on an exclusive basis, allowing the Indian firm ONGC Videsh Limited(OVL) to win explore the blocks without going through a bidding process.

Vietnam’s national oil company Vietnam Oil and Gas Group (PetroVietnam) offered Block 17, 41 and 43 while PetroVietnam Exploration Corporation offered blocks 10&11-1 and 102&106/10, as well as its Block Kossor in Uzbekistan.

The blocks reportedly are outside the disputed territories in the South China Sea where China claimed sovereignty.

A Memorandum of Understanding was signed between PetroVietnam and OVL for joint exploration, development and production of petroleum resources in Vietnam, India and other countries.

OVL already has already worked on two blocks in the South China Sea – 127 and 128 – that were offered by Vietnam in 2006. The company has relinquished block 127 for failing to find oil or gas and plans to abandon block 128 due to drilling difficulties, but Vietnam requested it to proceed until next year.

China claims sovereignty over the areas of Block 127 and 128 and expressed oppositions to India’s oil exploration in the areas.

According to estimates by the U.S. Energy Information Administration in February this year, the South China Sea contains approximately 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proved and probable reserves.