Spain's Repsol said it had suspended oil drilling in a block off Vietnam, where the prospecting in South China Sea waters claimed by China had infuriated Beijing and brought Chinese pressure on Vietnam to stop.
Tension has been growing between Vietnam and China over energy development in the waterway, where extensive Chinese claims are challenged by five Southeast Asian countries and disputed by the United States
Repsol's chief financial officer, Miguel Martinez, said work had been suspended off Vietnam, according to the transcript of a conference call with analysts last week.
"We are working with the PetroVietnam and with the Vietnamese authorities and the only comment is that right now, operations have been suspended," he said.
"We will have to see what the output is, but as mentioned $27 million is what we have spent till now in this well."
A Repsol official confirmed the suspension on Wednesday, but declined to give further details.
Drilling began in mid-June in Vietnam's Block 136/3, which is licensed to Vietnam's state oil firm, Spain's Repsol and Mubadala Development Co of the United Arab Emirates
The block lies inside the U-shaped "nine-dash line" that marks the vast area that China claims in the sea and overlaps what it says are its own oil concessions.
China had urged a halt to the exploration work and a diplomatic source with direct knowledge of the situation said that the decision to suspend drilling was taken after a Vietnamese delegation visited Beijing.
"Vietnam decided it didn't want to pick a fight with China over this," the source said.
Foreign Policy magazine said this week that China had threatened military action against Vietnam if it did not stop the drilling. It said that a decision to stop was made following acrimonious meetings of a divided politburo.
Vietnam has not confirmed the suspension of drilling but last week defended its right to explore in the area.
"Vietnam's petroleum-related activities take place in the sea entirely under the sovereignty and jurisdiction of Vietnam established in accordance with international law," Vietnamese Foreign Ministry spokeswoman Le Thi Thu Hang said.
"Vietnam proposes all concerned parties to respect the legitimate rights and interests of Vietnam."
China claims most of the energy-rich South China Sea through which about $5 trillion in ship-borne trade passes every year. Brunei, Malaysia, the Philippines, Taiwan and Vietnam also have claims.
David Shear, a former U.S. ambassador to Vietnam and a former assistant secretary of defense for Asia and Pacific under President Barack Obama, said that he believed that as a result of the spat Vietnam had lost two oil drilling sites.
He blamed it in part on "inattention" by President Donald Trump's administration in the region.
"This is a setback for the rules-based order and for our interests," he said.
Thomson Reuters data showed the drilling ship Deepsea Metro I was in the same position on Sunday as it had been since drilling began on the block in the middle of June.
Greg Poling, director of the Asia Maritime Transparency Initiative at the Center for Strategic and International Studies said the suspension of drilling did not mean the contract had been cancelled.
"Hanoi could greenlight Repsol drilling another well nearby, but it's certainly an expensive delay," he said.
(By Jose Elías Rodríguez; Additional reporting by Ben Blanchard and David Brunnstrom; Writing by Matthew Tostevin, editing by David Evans)