By Damian Grammaticas BBC Hong Kong correspondent

Two state-run companies in Taiwan and mainland China have signed a landmark deal to explore for oil in the Taiwan Strait.

It is the first co-operation of its kind, with both sides pledging to share any profits from the venture.

Taiwan's Chinese Petroleum Corporation, and its Chinese counterpart will work together despite their governments' political differences.

Political tensions between Taiwan and mainland China can run high

The driving force for this deal is the lure of profits for both sides if they find oil or gas in the seas that lie between Taiwan and mainland China.

It is billed as the first major joint venture between state controlled firms across the Taiwan Strait.

Adding to its significance is the fact that energy supplies are a highly strategic issue for both sides.

Splitting the costs

China has a thirst for oil to fuel its rapid development; Taiwan wants to lessen its reliance on energy imports.

Taiwan's Chinese Petroleum Corporation, and the China National Offshore Oil Corporation, known as CNOOC, have already spent two years doing initial geophysical surveys.

They suggest there may be oil and gas deposits in a 15,000 square kilometre area known as the Tainan Basin and the Chaoshan Trough, off China's southern coast.

The two companies will now split the $25m cost of drilling three test wells, and doing seismic surveys.

Breaking down barriers

The Taiwanese will manage the finances, the Chinese will manage the operations. Any profits from oil or gas that is found will be split.

It is a major step towards breaking down the barriers that have existed to trade between the two sides.

Wei Liucheng, the Chairman of CNOOC, described it as a milestone of commercial co-operation.

His Taiwanese counterpart Regis Chen said they would move towards jointly developing any energy supplies that they find.

The deal had to be approved by Taiwan's government. Just a week ago Taiwan's President said he believed private companies might have a role to play in breaking down barriers across the Taiwan Strait.