Japan Petroleum Exploration Co. and Teikoku Oil Co. are in talks with the government on their plans to drill for natural gas in the East China Sea near areas claimed by both Japan and China, government sources said Sunday.

The companies intend to merge their provisional concessions with those of two other firms they plan to take over, with test drilling slated to begin in the fiscal year that starts April 1. The government is likely to greenlight the plan, the sources said.

A Chinese consortium is currently carrying out natural gas projects on the Chinese side in an area very near the exclusive economic zone line set by Japan.

The government suspects the gas wells being tested may cut into Japan’s EEZ, and has demanded that China provide such information as the area covered by the projected deposits.

China has not given a substantive response, and Tokyo is now aiming to begin Japan’s own research in the area, the sources said.

Tokyo and Beijing are at odds over resource development in the East China Sea, mainly stemming from differences in defining an official demarcation for their EEZs. China has said its EEZ is bigger than Japan recognizes.

The sources said the government will carefully examine the timing of allowing the resource developers to start the test drilling, in view of the likely backlash from China, the sources said.

Japan Petroleum and Teikoku Oil have already applied to start energy development projects in the provisional concessions but have yet to obtain official rights to them from the government.

The concessions, located in an area disputed by Japan and China, cover around 250,000 sq. km, according to some media reports.

They were divided around 1970 among Japan Petroleum, Teikoku Oil, Fuyo Petroleum Development Corp., a Marubeni Corp. affiliate, and Uruma Resources Exploration Co., a Sojitz Holdings Corp. group firm.

Japan Petroleum bought all the outstanding shares in Fuyo last year and made it a subsidiary. It also reportedly aims to purchase Uruma, which Teikoku Oil is also said to be seeking to acquire, and Uruma’s concessions are likely to be merged with those of Japan Petroleum or Teikoku Oil.

The government has set aside a total of 12.9 billion yen for researching resources in the East China Sea in the fiscal 2005 budget, up sharply from 3.8 billion yen.

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