This will be a critical year for foreign companies exploring off Viet Nam, an analyst warns.
Some companies drilling their first wells there in 1993 had little success, and a formidable bureaucracy, and uncertain tax laws contributed to their discouragement.
But a gas discovery boosted spirits, and companies decided to wait and see what 1994 would bring before deciding to stay or go. A recent discovery by a Japanese group (OGJ Newsletter, June 27) also is encouraging, and new participants continue to enter Viet Nam (OGJ, June 27, p. 30).
Still, if there aren't some significant discoveries by the end of 1994, "some companies may walk away," says Rex Clementson, a partner in Price Waterhouse's world petroleum industry group in Hong Kong. He spoke recently at a Price Waterhouse seminar in Houston.
The government will attempt to rekindle interest by offering more exploration blocks this fall to east of existing contract areas in the South China Sea.
TAX QUESTIONS
The initial perception when companies began operating in Viet Nam in the early 1990s was that the tax situation "was okay," Trang Le Scott, Price Waterhouse's senior tax manager in Hanoi, told Oil & Gas journal. But then operators discovered things such as Viet Nam's turnover tax and personal income tax.
Even though foreign firms have become more comfortable with the business environment in Viet Nam during the past year, Clementson says, the fact that little oil has been found means some of the tax issues haven't been addressed seriously.
"If oil is found, there all need to be some changes in taxes that have become more onerous since the first production sharing contracts were let," Clementson told the seminar.
The petroleum law passed last September taxes oil and gas profits at 50%, although the calculation of "profits" is somewhat vague. Royalty rates range from 6-25% for crude oil and up to 10% for natural gas. Other applicable taxes under the petroleum law include import/export duties, land rental that also applies to sea surface, and a profits remittance withholding tax.
General business law dictates the turnover tax and a personal income tax. The standard corporate income tax rate for nonpetroleum businesses is 25%.
Scott cites two problems with tax laws: lack of a formal notification system to advise of new laws and inconsistent interpretation in different parts of the country.
DEMAND GROWTH
Despite tax obstacles, healthy growth in demand for petroleum products will require extensive oil and gas investment upstream and downstream in Viet Nam.
A group led by BHP Petroleum Pty. Ltd. signed a contract to develop Dai Hung oil field last year and plans to begin production this fall. The contract is part of an effort to speed development of fields that once were the responsibility of Vietsovpetro. There is still a tussle between Vietsovpetro, which wants to retain production rights in Viet Nam, and the government, which is anxious to put development on a faster track.
Originally estimated to contain I billion bbl, Dai Hung is now thought to hold 100-500 million bbl.
"Many put the total at the lower end of this range," Clementson told OGJ.
Gas reserves are now a key focus.
A 125 mile gas pipeline from Bach Ho field is planned to move gas to shore. An LNG plant is being considered.
Vietnamese gas demand is limited by lack of a distribution network, but plans to relieve the power shortage in the south include building gas fueled generating stations.
Refining capacity, too, must be expanded.
With only one refinery of about 30,000 b/d capacity, Viet Nam wants another refinery, Clementson says.
A group led by France's Total has submitted a bid to build a refinery about halfway up the country's East Coast, but the project has not moved ahead in recent months. The project includes Taiwanese and Chinese participation.
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