A Vietnamese deal with a unit of Conoco Inc. to evaluate a large offshore area in the South Con Son basin could help resolve a territorial dispute with China over the acreage.
So says Randall C. Thompson, president of Crestone Energy Corp., Denver. The company since May 1992 has held a petroleum exploration contract with China National Offshore Oil Corp. (Cnooc) on a tract of more than 6.2 million acres west of the Spratly Islands in an area China calls Wan An Bei.
Part of Crestone's WAB-21 contract area covers the same South China Sea acreage as Viet Nam's Blocks 133 and 134, where state owned PetroVietnam and Conoco Vietnam Exploration & Production BV in mid-April agreed to jointly evaluate prospects. Blocks 133 and 134 cover 3 million acres about 200 miles off Viet Nam's southern coast in an area Viet Nam refers to as Tu Chinh (see map, OGJ, Nov. 28, 1994, p. 25).
Earlier reports about the Conoco-PetroVietnam deal said the agreement heightened potential for conflict between the two Asian countries. However, Thompson, who for some time had been expecting Viet Nam to grant another company a license on the area, said it is more likely the pact amounts to a significant step toward peaceful joint development of oil and gas resources in the area.
Thompson said, "It's logical in the sense that it's necessary to balance the scales to have a lessor and an exploration company on each side to bring the parties together, just as has occurred in other joint development areas."
Sources said Conoco for about the past 2 years had been talking with PetroVietnam about the acreage. In addition, the two sides reportedly have had a memorandum of understanding about the area for more than a year.
No hint of solution
Officials of China and Viet Nam gave no hint that resolution of their territorial dispute is possible.
A Vietnamese foreign ministry official said his country has the right to tap natural resources in the area, with or without foreign partners.
"No one has the right to interfere or stand in the way," Viet Nam's official paper Tin Tuc Buoi Chieu declared Apr. 12.
Meantime, an official of China's foreign ministry said China holds indisputable sovereignty over the Spratly Islands.
"We will never accept any exploration by any country in this area. That would violate Chinese sovereignty," the official said.
Neither Crestone nor Conoco would take sides in the standoff.
Thompson said Crestone's only goal on the acreage is to explore for hydrocarbons and develop any discoveries with commercial potential.
"Crestone has no political agenda," he said. "This situation is between Viet Nam and China."
Other than reporting it holds a 70% interest and PetroVietnam 30% in the joint evaluation agreement, Conoco declined to comment further. The company also refrained from discussing the possible resolution of political issues underlying the Chinese-Vietnamese dispute.
Reflecting an opinion formed through Crestone's long relationship with Cnooc, Thompson said he believes China won't allow unilateral exploration of the area. However, China might be willing to set aside sovereignty issues, shelve the political dispute, and proceed on the acreage with joint development involving all four parties.
Indicators of progress
Thompson says China and Viet Nam, in the meantime, have made progress toward resolving the dispute by working quietly and in private on the matter.
He counts at least three ministerial level meetings between the two countries about the disagreement within the past 3 years.
Sources previously reported Chinese and Vietnamese naval vessels supporting oil and gas exploration activities in the area.
But Thompson said neither country in about the past 11/2 years has confronted the other in the area. Similarly, until Conoco announced its deal with PetroVietnam, neither country has gone out of its way to protest the other's claims to the acreage.
Thompson said the two countries have stopped harassing each other about the situation because each is trying to reposition itself for an unspecified joint development effort.
In addition, he said, Conoco's reputation and financial resources bring respectability to any deal. It also is likely officials of the Vietnamese government and at PetroVietnam will listen to Conoco's ideas about production sharing arrangements under a joint development.
Conoco is pursuing other business plans in Viet Nam. The company holds an interest in a feasibility study for Viet Nam's first refinery, a proposed 130,000 b/d plant to be built at Dung Quat.
While Conoco has no business interests in China, parent company DuPont is involved is several joint ventures in the country expected to generate combined sales this year of as much as $300 million. DuPont this month said it would join with BASF AG to build a $750 million nylon plant, most likely in China.
With ties to business projects in both countries, Conoco could play a key role in settling issues blocking joint development of the disputed South Con Son acreage.
Where Crestone stands
For its part, Crestone appears ready to wait out the current impasse.
The company reported early this month that Cnooc had granted a 2 year extension through May 1999 to the mandatory 5 year, Phase 1 exploration period defined in the 7 year long agreement awarded by Cnooc in 1992.
Crestone needs the extra time to acquire seismic data on WAB-21 to further define prospects mapped by earlier seismic surveys held by Crestone and Cnooc's Exploration & Development Research Center.
In addition, if Crestone can't start a 2 year evaluation program 2 years or more before the end of Phase 1, Thompson said Cnooc will allow the company as much time as it needs to finish the work. Crestone's contract with Cnooc includes a force majeure clause that allows the clock to stop if political activity interrupts or prevents Crestone from working on WAB-21 tract.
If Crestone agrees to proceed into the second, optional 2 year exploration phase on WAB-21, it must drill several wildcat to various depths.
Terms of Crestone's WAB-21 contract might be voided by a later joint development agreement. But Thompson said he is optimistic Crestone and Conoco will be willing to work with each other under a joint venture arrangement, if the two governments first can work out their dispute.
"Conoco has said its resolve is to peacefully and mutually resolve this to the benefit of all parties," Thompson said. "So I think Conoco will help bring that dispute to a resolution."
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
