China National Offshore Oil Corp, the country's biggest marine oil producer, signed a production-sharing contract on Wednesday with Eni China BV for a deepwater block in the South China Sea.

Italy-based Eni will operate the 30/27 block, which has a total area of 5,130 square kilometers and lies 400 kilometers off the coast of Hong Kong, according to Zhang Yuxiao, a media official at CNOOC Ltd, a listed arm of CNOOC.

CNOOC said in a statement that Eni will conduct three-dimension seismic surveys and drill one exploration well in the block and cover all expenditures during the exploration period.

CNOOC will have up to a 51 percent interest in any commercial discoveries in the block.

Eni, which entered China in 1980, holds a 16.77 percent share in two offshore blocks, 16/08 and 16/19, in the South China Sea, which have a daily output of about 10,000 barrels of oil equivalent.

It's also participating in the 28/20 block as an operator, according to the company's website.

Zhu Weilin, executive vice-president of CNOOC Ltd, said that deepwater oil and gas in the South China Sea will be one of the company's main sources of medium- and long-term development.

Since China's near-shore area offers very limited potential for further oil and gas exploration, it's imperative for the company to go to deepwater projects, said an analyst at JYD Online Co Ltd, an e-commerce bulk commodity information provider.

CNOOC is testing its first domestic semi-submersible drilling rig, the Haiyang Shiyou 981, which is capable of operating at a maximum water depth of 3,000 meters, as part of its ambitions to achieve deepwater output of 50 million tons of oil equivalent by 2020.

As its technologies develop, CNOOC will be able to operate in difficult deepwater project on its own, analysts said, but the company still relies on foreign expertise in the industry.

However, as foreign oil companies move into China's oil and gas sector, attracted by deepwater and shale gas prospects, the government has become concerned about protecting natural resources and tightening policies for such projects.

The Ministry of Land and Resources announced on Tuesday that domestic and foreign companies that explore onshore and offshore for oil and gas resources must pay compensation fees for the mineral resources, the first time that the government has imposed such a fee.

It's a signal that China is becoming more concerned about resource protection, and more stringent policies are likely to follow, the analyst at JYD said.