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China, Taiwan Sign Oil Deal

State-run oil companies from China and Taiwan have signed a landmark agreement to explore for oil in the Taiwan Strait. The deal represents another step forward in economic cooperation between the two political rivals.

China's National Offshore Oil Corporation and Taiwan's Chinese Petroleum Corporation have agreed to invest an estimated $25 million to drill three oil exploration wells. The two state-run companies say they will create a joint venture to prospect for oil in an area between the Tainan Basin and the Chaoshan block, which covers more than 15,000 square kilometers of water in the Taiwan Strait.

At a signing ceremony in Taipei, China's National Offshore Oil Corporation Chairman Wei Liucheng, said , the contract marks an important milestone of commercial cooperation between oil and gas companies across the Taiwan Strait.

The deal is one of the largest yet between state-run companies in Taiwan and China. But analysts say the contract is not likely to affect the political stalemate between the two sides, which split following a civil war in 1949.

Tom Hilboldt, a Hong Kong-based oil and gas analyst at the firm Salomon Smith Barney, says the deal between the two companies will account for only a small portion of China's total spending on oil exploration. "In the context of overall spending in offshore China, which we expect to be on the exploration side in the area of $400 to $500 million, this $25 million commitment is not insignificant, but it is certainly not a huge commitment on either party's part," he said.

Under the agreement, China's National Offshore Oil Corporation and the Chinese Petroleum Corporation will split the investment equally. The two companies say they have studied the area in the Tainan Basin for several years. They have identified many potential oil and gas deposits. If oil is discovered in the joint exploration, the Taiwan side says it will manage the finances and the China company will manage operations.