The recent diplomatic clash between China and Vietnam over deep water drilling in the South China Sea has important implications for oil and gas companies with interests in disputed waters. The incident suggests that China s claims in the South China Sea include perceived rights to oil and gas resources. It could also a signal that Beijing is prepared to dissuade any new attempt to develop hydrocarbon resources within the nine dash line by other South East Asian governments. Beijing's use of coercion to prevent oil and gas development in the South China Sea is not new but the threat of military action by China marks a worrying escalation. What are the key factors and risks that companies with interests in acreage within the disputed waters should consider?