Viet Nam is on its way up in the petroleum world.
After years of international isolation, the country is poised for a flurry of exploration by international oil companies in the early 1990s.
Viet Nam has joined the Soviet Union as the only members of the now dissolved, formerly Moscow dominated, 10 nation Council for Mutual Economic Assistance (CMEA) that are self-sufficient in oil production.
Moreover, Viet Nam has far outstripped neighboring China, which was not a CMEA member, in offshore oil flow even though China has a much larger Outer Continental Shelf. Prospects are that Viet Nam will continue to lead China in offshore oil production until 1995 at least.
Gauging what's been discovered off Viet Nam and its barely tapped potential, industry analysts contend Viet Nam could be a significant oil exporter at the turn of the century.
The key to that status is whether Viet Nam can maintain progress on economic reforms in order to continue to attract foreign investment to its oil sector. Multinational companies are eagerly queuing up to participate. Conspicuous by their absence, however, are U.S. companies, blocked by a U.S. embargo on trade with Viet Nam. The U.S. is the only major country that does not have formal relations with Hanoi.
Whether that status changes remains to be seen. The U.S. Senate foreign relations committee has recommended in a sense of the Senate resolution that the U.S. end its trade embargo against Viet Nam, an action that would allow U.S. oil companies to obtain exploration concessions there.
Meantime, neighboring Thailand has been especially aggressive in efforts to promote E&D in Viet Nam, lured by the prospect of joint development of gas off both countries.
VIET NAM, CHINA COMPARISON
Viet Nam has been as surprising in its rapid offshore oil production growth as China's offshore has been disappointing.
Viet Nam has only one offshore field on stream, whereas China has six (OGJ, June 3, p. 32). China began producing offshore oil in September 1985, while Viet Nam's only field began production during June 1986.
Viet Nam's White Tiger oil field in the South China Sea apparently will achieve a higher peak flow than any Chinese offshore field now on production or under development. China has four oil fields under development, Viet Nam two.
Last year, China produced 28,600 b/d offshore, according to an estimate by East-West Center, Honolulu. Flow from Viet Nam's White Tiger field topped 60,000 b/d.
This year, China's offshore oil production is estimated at 36,000-45,000 b/d. East-West Center reports Viet Nam's White Tiger flow has already reached 75,000 b/d, although the Vietnamese press placed first quarter 1991 offshore production at slightly more than 62,000 b/d (OGJ, June 17, p. 13).
The Vietnamese-Soviet joint venture Vietsovpetro, which delineated and is developing White Tiger, hopes to push this year's production to 10% above the official target. Last year's flow was significantly higher than the original 1990 goal of 40,000 b/d and exceeded the increased target of 50,000 b/d.
White Tiger has eight platforms on stream, with each of the first seven having 15-16 producing wells.
Four more platforms are to be installed in White Tiger by 1995 to enable the field to achieve peak production.
Hanoi believes it can raise offshore Vietnamese crude flow to at least 124,000 b/d in 1992. Target for 1995 is 160,000 b/d.
By that time, Viet Nam expects to have two more fields, Dragon and Big Bear-the latter believed bigger than White Tiger-on stream. They are in the South China Sea southwest and southeast of White Tiger.
At least two other fields have been discovered in the same area.
East-West Center projects Viet Nam's crude flow will reach 300,000-500,000 b/d by 2000-2005. The center also predicts China's offshore oil production will be about 160,000 b/d by 1995.
Viet Nam is a net oil exporter, and its foreign sales are likely to increase sharply through 2000 at least. Vietnamese oil exports to the U.S.S.R. apparently are not reaching the Soviet Union directly but are being sent to third countries with whom Moscow has contracts for petroleum deliveries.
China, on the other hand, has seen oil exports fall from a peak of 600,000 b/d in 1985 to 490,000 b/d in 1989 and apparently to a current level of less than 400,000 b/d.
It's unlikely that new offshore production can reverse this slide in Chinese oil exports in the foreseeable future.
Viet Nam experienced severe shortages of refined products during the Persian Gulf crisis despite rising crude production. The nation's only refinery has a crude processing capacity of less than 1,000 b/d.
VIET NAM'S POTENTIAL
If Viet Nam's proved oil reserves attain the level of potential reserves East-West Center attributes to the country, it would rank fourth among Asian oil producers.
It is impossible to give accurate estimates of the oil and gas potential of Viet Nam, notes Charles Johnson, center research associate, and David Hayes, graduate student, in a petroleum advisory prepared for East-West Center.
Their September 1990 estimate of 1-2.5 billion bbl of potential oil reserves has been jumped to 1.5-3 billion bbl based on more optimistic assumptions about reserves in the three known offshore fields and expectations that joint exploration will occur in disputed areas with Thailand and Malaysia.
This can be compared with proved reserves of 1.7 billion bbl for Australia and about 3 billion bbl for Malaysia. Oil & Gas Journal estimated Viet Nam's proved oil reserves at yearend 1990 at 500 million bbl (OGJ, Dec. 31, 1990, p. 41).
The outlook for gas is quite favorable with the potential for a number of fields with reserves of 1-4 tcf each, Johnson and Hayes wrote.
Combined estimated potential reserves of Viet Nam's three commercial oil discoveries are 575 million-1.05 billion bbl, broken out into Bach Ho (White Tiger) field 175-300+ million bbl, Dai Hung (Big Bear) perhaps 300-600 million bbl, and Rong (Dragon) 100-150 million bbl.
Johnson and Hayes wrote, "It is important to emphasize that the Vietnamese have not released reserve estimates for the three fields, therefore these estimates should be used with caution."
Vietnamese comments on the level of future production from Bach Ho field imply reserves well above 300 million bbl, Johnson and Hayes contend.
Oil production from Bach Ho field increased from 800 b/d in 1986 to about 55,000 b/d in 1990 and is expected to rise to about 100,000 b/d by yearend.
Viet Nam's production is projected to be 300,000-500,000 b/d during 2000-2005 with 600,000 b/d possible under Johnson and Hayes' most optimistic scenario and 200,000 b/d under their most pessimistic scenario.
FOREIGN OPERATORS
A combine of Shell Exploration BV and Cities Service Oil Co. discovered Rong field in 1974, and Mobil Oil Corp. drilled the Bach Ho discovery well in 1975.
U.S. firms left Viet Nam in 1975, followed by all other western firms by 1981 when Viet Nam closed its doors to exploration by western companies.
New policies and legislation in late 1987 encouraged foreign firms to return to Viet Nam, Johnson and Hayes wrote. During the past 3 years western firms have obtained exploration licenses covering most of Viet Nam's prospective offshore areas under favorable production sharing contracts.
Enterprise Oil plc disclosed an oil discovery in late 1990 about 34 km southwest of Bach Ho field (OGJ, Nov. 26, 1990. p. 38). Early indications are the field may be modest in size, Johnson and Hayes wrote.
Meanwhile, International Petroleum Ltd., Dubai, recently plugged its 115-A-1X wildcat on Block 115 in the South China Sea off southern Viet Nam (OGJ, May 27, p. 44). IPL tapped a gas column with a high carbon dioxide level in the carbonate objective. Gas shows were found in a shallower zone but it did not flow significant volumes of hydrocarbons when tested. Total depth is 3,523 m.
Companies from at least 15 countries are pursuing exploration opportunities in Viet Nam: Australia, Belgium, Canada, France, India, Indonesia, Japan, Malaysia, Netherlands, New Zealand, Sweden, Taiwan, U.K., and U. S. S. R.
Companies in addition to Enterprise, IPL, and Vietsovpetro are BHP Petroleum Pty. Ltd., British Petroleum Co. plc, Cairn Energy, Chinese Petroleum Corp., Clyde Petroleum plc, Husky Oil Ltd., Lasmo plc, India's Oil & Natural Gas Commission, Indonesia's Pertamina, Petro-Canada, New Zealand's Petrocorp, Petrofina SA, Malaysia's Petronas, Royal Dutch/Shell Group, Swedish Exploration Consortium AB, Sceptre Resources Ltd., Japan's Sakhalin Oil Development Corp. Co. Ltd., and Total.
Meanwhile, Japanese trading house Nissho Iwai has formed a joint venture with Japan Petroleum Exploration Co. and Indonesia Petroleum Ltd.-both affiliates of state owned Japan National Oil Corp.-to pursue exploration agreements in Viet Nam.
Nissho Iwai said the venture will make a proposal to the Vietnamese government by yearend. The plan emerged after Nissho Iwai Vice Pres. Kunio Komatsu met with Vietnamese Premier Du Muoi in Hanoi early last month. During talks, Komatsu reportedly said his company also is interested in participating in developing Viet Nam's petrochemical industry.
It is uncertain whether involvement of two units of JNOC would conflict with Tokyo's freeze on extending aid to Viet Nam, in force since Viet Nam's invasion of Cambodia in December 1978.
Other Japanese companies pursuing oil and gas deals in Viet Nam include Idemitsu, Showa Shell Sekiyu, Teikoku Oil, Sumitomo Corp., Mitsubishi Corp., Marubeni Corp., and Mitsui & Co.
EXPLORATION SURGE LIKELY
A surge of exploration is likely in the early 1990s as many companies reach the drilling stage at about the same time, according to Johnson and Hayes.
"This concentration of exploration activity has a high probability of producing a number of oil and gas discoveries in quick succession during the first half of the 1990s," they wrote.
"Our optimism is based on the level of exploration activity by private companies, size and location of basins in Viet Nam, and the number of commercial discoveries in Viet Nam and in extensions of basins across the border into China, Malaysia, and Thailand.
"After lifting of the U.S. trade embargo, entry of major oil and service companies into Viet Nam will accelerate the rate of discoveries and commercial developments."
Viet Nam appears to have quite favorable basins for gas with at least one significant gas discovery.
The disputed area in the Gulf of Thailand between Viet Nam and Thailand is gas prone and lies near gas reserves in Thailand.
Northern Viet Nam also is gas prone, and substantial associated gas has been found in commercial oil discoveries in the south. Currently there are no gas fields off Viet Nam on stream. But commercial gas production is believed to have commenced from a small onshore gas discovery in the Hanoi basin.
Viet Nam faces severe shortages of fertilizer that could be accommodated by using natural gas feedstock.
U.S. EMBARGO
Viet Nam is high on the exploration lists of major petroleum companies around the world, Johnson and Hayes noted.
"Glaringly absent are U.S. companies because a U.S. government embargo prevents them from doing business in Viet Nam. The result is that other companies have had a rare opportunity to obtain exploration contracts without vigorous competition from major U.S. oil companies."
Sen. Frank Murkowski (R-Alas.) introduced legislation in April to relax the U.S. trade embargo with Viet Nam.
In a recommendation for a sense of the Senate resolution, Murkowski said, "We are keeping our own firms out of the competition while at the same time not succeeding in keeping goods out of Vietnam."
The recommendation now goes to the full Senate.
"The embargo is likely to end within 2 years regardless of the outcome of Murkowski's legislation," Johnson and Hayes wrote. "Full diplomatic relations can proceed at a slower pace."
There is no doubt some U.S. oil companies will become involved in exploration when the embargo is lifted, they contend. "However, it is too late to lift the embargo and expect a rush of U.S. oil companies into Viet Nam."
More than three fourths of the most prospective offshore basins in less than 200 m of water are held by other oil companies, Johnson and Hayes noted.
"The large size of the areas held by companies, the high cost of exploration off Viet Nam, and the smaller size of some of the companies suggest there will be many opportunities for joint venture arrangements on exploration blocks-but at a premium over the original license-holders.
"At least as important is the service sector, where U.S. industry can play a very active role in developing the oil fields.
"The most exciting blocks are those held by Vietsovpetro.
"A portion of those blocks might be made available to U.S. oil companies-particularly if the embargo is lifted within the next year or so."
Johnson and Hayes noted there have been periodic reports by the Vietnamese that they are holding a few promising blocks for U.S. firms.
"The locations of the blocks have not been reported, and a review of the prospective basins does not reveal a sufficiently large unlicensed prospective area within the 200 m depth range," they wrote.
So if a number of blocks are being reserved for U.S. companies, they probably are among the ones held by Vietsovpetro or possibly in deeper water-beyond 200 m, according to Johnson and Hayes. There have been preliminary talks with at least one U.S. company about participation in some of the Vietsovpetro blocks, they reported.
EMBARGO END SEEN?
Efforts to end the U.S. embargo on trade with Viet Nam have accelerated in Washington.
The upshot is a possibility the embargo could be dissolved in 6-18 months, industry sources say. The near term scenario would entail U.S. business interests stepping up lobbying efforts with President Bush and Sec. of State James Baker to put the issue on a fast track, sources say.
Murkowski's 12-1 victory on his sense of the Senate resolution to end the embargo "is galvanizing people in Washington," said Eugene Mihaly, president of Mihaly International Corp., a Sausalito, Calif., management consulting firm that specializes in investment and business development in Asia and eastern Europe.
"There's been an acceleration of the crumbling of policy in that the number of people who question the validity of that policy is rising," he said.
Mihaly contends the issue of a U.S. embargo against Viet Nam had been weighted on MIA families and veterans' groups seeking to secure return of remains of U.S. soldiers missing in action from Viet Nam and the National Security Council's efforts to push Hanoi into supporting a more acceptable regime in Cambodia.
He noted there have been efforts recently by the U.S. Chamber of Commerce plus a number of individual companies as well as stirrings in other business organizations that could lead to major lobbying soon.
Murkowski's successful resolution has demonstrated rising sentiment that the question of linking Cambodia to ending the embargo "just doesn't wash and that the U.S. has important interests in Viet Nam and they should no longer be mired in what's happening next door," Mihaly said.
Murkowski also has introduced legislation in the Senate banking committee calling for a halt to the embargo on Viet Nam if the country agreed to a respected third party to arbitrate an end to the MIA issue.
The U.S. embargo includes a veto on World Bank, Asian Development Bank (ADB), and International Monetary Funds loans to Viet Nam.
Mihaly, writing in Far Eastern Economic Review, noted that ADB and World Bank are developing inventories of projects to fund as soon as the embargo is lifted. ADB alone has almost $800 million worth of potential projects under discussion with Vietnamese authorities, he wrote.
The U.S. position on the World Bank and other loans hurts Viet Nam but is not doing anything to change Hanoi's position on Cambodia, Mihaly noted.
THAI-VIET TIES PROMOTED
Thailand's Industry Ministry has voiced support for state owned Petroleum Authority of Thailand (PTT) to explore for oil and gas in Viet Nam.
Deputy Industry Minister Vira Susangkaran recently led an official Thai delegation to Hanoi to study Thai participation in Vietnamese E&P.
He said PTT unit PTT Exploration & Production (Pttep) may explore independently or form a joint venture with major international oil companies.
Although Susangkaran did not specify Thai areas of interest, industry sources in Bangkok said Pttep is interested in offshore tracts close to Thai waters in the Gulf of Thailand where disputes over territorial claims among the two countries and Cambodia remain unresolved.
The area is of special interest because it is highly prospective for natural gas.
Thailand is stepping up use of its gas resources because domestic gas supplies are expected to fall short of rising demand spurred by rapid population and industrialization growth.
THAI-VIET JOINT VENTURES
During the past year Viet Nam has discussed with various governments options for joint exploration and development in some of the disputed areas. Talks have covered the gas prone 6,000 sq km of disputed area between Thailand and Viet Nam.
It is likely agreements will be reached in the first half of the 1990s with Malaysia and Thailand for joint operations in their disputed areas, Johnson and Hayes noted. And similar talks could proceed, but at a slower pace, with China.
Pttep has begun negotiations with the Vietnamese government to jointly develop associated natural gas in Bach Ho and Dai Hung oil fields.
Tentative plans call for transporting Bach Ho gas to shore to fuel an electric power plant and provide feedstock for a fertilizer plant Pttep proposes to build in southern Vietnam.
Talks also focus on the possibility of Pttep becoming a joint venture participant in development of Dai Hung and buying its associated gas for transport to and consumption in Thailand.
Pttep Pres. Tongchat Hongladaromp was in Viet Nam recently negotiating terms with officials of Vietsovpetro, which holds the concession rights on tracts covering the two fields.
Vira Susangkarakan has planned to lead a mission to Viet Nam this month to try to establish an agreement in principle on the proposals with Vietnamese officials.
Tongchat said Pttep's board has given him a mandate to pursue the proposals, and Vietnamese authorities have so far responded "enthusiastically" about having Pttep as a partner.
Pttep proposes buying about 70 MMcfd of associated gas from Bach Ho field, now being flared. It wants the fertilizer project to be a joint venture with Viet Nam's government.
The Thai state owned exploration company had earlier planned to transport Bach Ho gas to Thailand but dropped the plan when it learned field deliverability is too limited to justify investment in a pipeline to Thailand.
However, Pttep sees it might be able to do so in the case of Dai Hung, which has potential deliverability of 300 MMcfd. Plans call for Pttep to lay a 700 km pipeline from Dai Hung westward to connect with PTT's existing offshore gas pipeline grid in the Gulf of Thailand.
The size of interests in Bach Ho and Dai Hung fields Pttep is seeking is not disclosed. Details of its proposal plan for joint investment in the construction of gas fired power plant and fertilizer project in Viet Nam remain sketchy.
But it will press its campaign to buy Dai Hung gas. That's in keeping with Thailand's efforts to find new sources of gas supply in neighboring countries to accommodate rising Thai gas demand for gas imports to sustain rapidly growing power generation, petrochemicals, and other industries.
Pttep has taken similar steps in neighboring Myanmar, seeking the right to develop gas reserves in the Gulf of Martaban and move them via pipeline to Thailand.
VIET NAM'S ECONOMY
While Viet Nam admits its overall economy is in poor condition, offshore oil production is producing some benefits. This is especially apparent in trade with the Soviet Union, its largest commercial partner.
In 1989, Viet Nam bought more than 37,000 b/d of petroleum products valued at 387 million rubles from the U.S.S.R. Hanoi's overall 1989 trade deficit with Moscow was about 871 million rubles.
In 1990, with major help from oil sales, Viet Nam's trade deficit with the Soviet Union fell to slightly more than 400 million rubles. This year, Hanoi hopes trade with the U.S.S.R. will be in balance.
By the mid-1990s, Viet Nam likely will have a favorable trade balance with the U.S.S.R. It should be able to begin paying off its large debt to Moscow, a development deemed virtually impossible only a few years ago.
Radical reforms have helped revive the Vietnamese economy and eliminate many consumer shortages, including food. Reforms include recognition of the right to relatively free competition in trade and industry, private ownership of land and means of production, and dismantling part of the administrative-command system of economic management.
Raging inflation of 400%/year has been greatly reduced.
But Hanoi recently was forced to cut nearly in half its plan for 5.6% gross national product growth in 1991. A huge cut in Soviet economic aid will have a significant negative effect unless more investment can be obtained from other nations.
Viet Nam says it attracted $1.4 billion in foreign capital in 1987-90. But it adds that large additional foreign capital investment-at least $250 million/year-is required to achieve a 6% economic growth rate the next several years.
The main problem inhibiting western entrepreneurs is Viet Nam's archaic legal system, which does not adequately protect foreign investment even though inducements to oil companies are often quite attractive. Widespread corruption, black market speculation, and trading in contraband are causing domestic difficulties.
Foreign businessmen also have been disturbed by recent official Vietnamese statements attacking "domestic and foreign forces trying to destabilize the nation's social and economic life." It's feared such pronouncements may lead to a retreat from reforms aimed at creating a market economy.
Viet Nam's party congress in late June did nothing to eliminate those concerns.
The chief results of that congress were a reaffirmation of the current one party Communist rule with a definite commitment to pursue a market economy but under rigid party supervision.
VIET NAM'S OUTLOOK
Rapid oil and gas development probably will provide the single most important boost to foreign exchange earnings for Viet Nam the next 10-15 years, Johnson and Hayes noted.
However, rapid development of Viet Nam's petroleum potential won't be enough to pull the country out of its serious economic troubles, they wrote.
Viet Nam was receiving large amounts of aid from the Soviet Union until 1990, when aid was slashed by almost two thirds, according to the East-West Center advisory. Soviet aid appears to have averaged about $3 billion/year before the cut, the authors estimated.
The cut in aid is about equal in value to oil revenues Viet Nam may be receiving at the turn of the century.
"Large amounts of Soviet aid did not solve Viet Nam's economic problems in the past, and oil revenues are not expected to solve the country's economic problems in the future," they wrote.
Foreign exchange from oil exports could account for more than half of Viet Nam's exports by 2000, according to Johnson and Hayes.
"But more important than oil revenues will be economic reforms and the reduction of bureaucracy and regulations that stifle development of a dynamic private sector.
"The Vietnamese government appears to recognize the need for economic reforms as reflected in its new foreign investment legislation, increased use of advisers from western countries, and 'doi moi,'the Vietnamese version of perestroika announced in 1987."
A large literate population, low labor costs, energy resources, and location within a rapid growth region give Viet Nam more potential for economic growth than most developing countries in the world, Johnson and Hayes wrote.
"Success in developing a dynamic, broad based, private sector could carry Viet Nam into the ranks of Asia's high growth industrializing countries during the first 2 decades of the 21st century."
Copyright 1991 Oil & Gas Journal. All Rights Reserved.
