ONGC Videsh Limited (OVL), wholly-owned subsidiary of Oil and Natural Gas Corp. (ONGC), will retreat from the disputed Block 128 area in the South China Sea while claiming technical problems, according reports in the Indian media on May 12.

In 2006, the company signed a contract to jointly explore Blocks 127 and 128 together with Vietnam Oil and Gas Group. Despite ongoing sovereignty disputes and protests from China, it began test drilling in September 2009. Since then, the company has invested US$46 million in equipment and manpower but has not achieved any meaningful results due to extremely tough seabed and other technical problems, it said.

On May 12, India's Ministry of External Affairs told ONGC that it could independently decide whether it will give up the exploration project.

In fact, OVL has had this idea at the beginning of April after repeated failures to drill through the dense seabed. According to a report by Hindustan Times in April, the company had considered giving up oil and gas explorations in the area.

On April 10, Ministry of Petroleum and Natural Gas of India sent a letter to the Ministry of External Affairs and said that ONGC has decided to retreat based on technological and business concerns. In 2011, OVL already relinquished Block 127 for the same reason.

In response, however, the Ministry of External Affairs was against the company abruptly surrounding Block 128. One senior official at the ministry said he was concerned over the ramifications of the withdrawal on the heels of China's statement that India's exploration was "illegal."

Still, Chinese officials and scholars are applauding India's retreat as the latest development in South China Sea.

"The region is a disputed area. Therefore, we don't think to do so (to prospect for oil) is good for India," Sun Weidong, Deputy Director General of Asian Department in the Chinese Ministry of Foreign Affairs said. He said that the sovereignty of the islands in the region was a huge issue, and India should not carry out oil exploration activities there before the issue was resolved.