For Tillerson, South China Sea Storms Aren’t New

A top challenge for Rex Tillerson as Donald Trump’s secretary of state would be navigating the U.S.’s sensitive relationship with Beijing. On at least one flashpoint, the South China Sea, he has some familiarity.

Under Mr. Tillerson’s leadership, Exxon Mobil Corp. waded into one of the region’s thorniest diplomatic disputes when it signed a deal with Vietnam seven years ago to drill for natural gas, partly in waters also claimed by China, drawing Beijing’s ire and garnering attention from U.S. officials.

Some of Exxon’s blocks in Vietnam cross into waters claimed by both Hanoi and Beijing. Fear of angering China had driven some other oil companies away from the potentially lucrative reserves. Meanwhile, Exxon with Mr. Tillerson as CEO emerged as an important partner for Vietnam.

The company’s Vietnam president acknowledged the contested claims while briefing the U.S. Embassy in Hanoi in 2009, when Exxon quietly signed a production-sharing contract for the offshore blocks, according to a diplomatic cable leaked by Wikileaks.

Exxon said this week in response to questions that it is negotiating with Vietnam over commercial development of the offshore natural-gas reserves, but that those talks have only related to resources in undisputed waters.

Nevertheless, the company’s venture in Vietnam “creates some friction,” with China, said Victor Gao, formerly a Chinese Foreign Ministry official who also was a top executive at state-owned oil company Cnooc Ltd. He said Mr. Tillerson should “start from a fresh page.”

The disputed blocks in the South China Sea have been at the center of violent clashes between China and its neighbors previously. In 2014, a Chinese rig began drilling in waters contested by Vietnam, setting off a monthslong standoff between Chinese and Vietnamese security forces near the Paracel Islands chain, to the east of Exxon’s blocks.

Mr. Tillerson flew to Beijing in the middle of the row, meeting with oil-company executives including the chairman of China National Offshore Oil Corp., which controlled the rig at the center of the dispute. Neither companies have provided details on what was discussed.

China’s Foreign Ministry didn’t respond to a faxed request for comment on Exxon’s role in the South China Sea. A spokesman said at a regular press briefing this week that it was willing to work with whomever Mr. Trump selected at secretary of state for better bilateral ties.

Mr. Tillerson’s ties to Russia have attracted much attention recently, drawing some bipartisan concern in the U.S. over his ability to lead its diplomatic efforts around the world. He is a far lesser known figure in Beijing.

Part of the reason is money. It’s much more difficult for a foreign oil company to profit in China than in Russia, industry experts say. While China represents a huge market for energy, Russia’s production reserves benefit from from foreign capital to boost output and exports.

“Russia needs Exxon a lot more than China needs Exxon,” said Bo Kong, who researches China’s energy industry at the University of Oklahoma.

Exxon isn’t a complete stranger to China. It has a minority stake in large refinery in southern Fujian province, and a network of company-branded gas stations to profit from the rise of Chinese drivers. It also sells China liquefied natural gas from a huge project it operates in Papua New Guinea.

Exxon declined to comment on whether Mr. Tillerson personally had a view on China’s maritime claims, which cover nearly the entire South China Sea. The company has previously said it believes sovereignty issues are best left to governments to resolve. If confirmed as secretary of state, those are discussions the oilman could soon find himself in the middle of.

“Rex will know very well the sensitivities in the South China Sea,” said Mr. Gao, the former Chinese oil-company executive