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Vietnam to Push Ahead With Offshore Field Exploration Despite China Claims

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HANOI - State-owned Vietnam Oil and Gas Group, or Petrovietnam, plans to keep buying foreign oil-and-gas assets and hopes to be producing close to 100,000 barrels a day of oil overseas by 2020, four times the volume expected this year, the company's chief executive said.

Increased overseas oil production, which Petrovietnam says could be sold internationally or brought home for refining, will help Vietnam cope with rising energy demand, as a territorial dispute with China casts a shadow over its own promising offshore prospects.

Vietnam and its international partners will keep working to develop offshore oil-and-gas reserves within its maritime border, Petrovietnam President and CEO Do Van Hau told The Wall Street Journal.

"Recently, although there have been some Chinese claims about the sovereignty of Vietnam's territorial waters in the West Sea, there have still been many investors--domestic and foreign petroleum companies--continuing their research and cooperation and signing contracts to conduct petroleum activities in Vietnam's waters," he said.

The country's oil output has been largely stagnant around 300,000 barrels a day in recent years, and the government is eager to increase output of hydrocarbons to help fuel an economy that has grown by an average of 7% over the past decade. Natural gas output in 2013 is forecast at 9.2 billion cubic meters, down from 9.3 billion in 2012.

Petrovietnam's earnings and taxes account for between 20% and 30% of the national budget.

"So far we have not made commercial discoveries [in disputed areas], but if there are commercial discoveries--and I am optimistic that we will have them--then we will start developing them if they are within our continental shelf," he said, referring to the maritime territory within 200 nautical miles of Vietnam's coast.

Nine months ago, the government in Hanoi protested strongly after China National Offshore Oil Corp. invited bids for a new batch of oil exploration blocks, including some that are within the 200-mile limit that Vietnam claims as its exclusive economic zone, basing its case on the United Nations' Law of the Sea.

At the time, Petrovietnam urged China to cancel bidding for the areas it identified as being in Vietnamese waters, calling on foreign firms not to participate and noting that Oil & Natural Gas Corp., Gazprom OAO and Exxon Mobil Corp. have been operating under licenses issued by Vietnam in some of those areas for many years.

China's increasingly assertive claims of sovereignty over most of the South China Sea have pitted it against Vietnam, the Philippines, Malaysia and Brunei, with this resulting in military standoffs and claims that Chinese vessels have cut the cables of ships conducting seismic surveys for hydrocarbons.

Any perception that foreign companies with exploration blocks offshore Vietnam are withdrawing or not meeting their commitments due to disputes with China is incorrect, Mr. Hau said, adding that Exxon Mobil, Gazprom and Talisman Energy Inc. are among companies that are active in prospecting offshore.

Gazprom has 49% stakes in two offshore gas blocks, where commercial production is due to start in June, he said.

In March, Petrovietnam said it would continue to invite foreign partners to join its exploration projects, including those in the Red River Delta in northern Vietnam and deep-sea areas.

Large amounts of gas lie under the seabed offshore Vietnam, Mr. Hau said, noting that Exxon Mobil had made Vietnam's biggest gas find to date off the country's central coast.

In October 2011 Exxon Mobil announced it had discovered oil and gas offshore Da Nang in central Vietnam, in an area known as Block 119, which isn't in disputed waters, but it didn't say whether commercial quantities had been found.

Mr. Hau said Wednesday that the U.S. oil major is still evaluating the find, and production could potentially start in five to seven years.

To help meet its rising energy needs, Vietnam will in coming months invite bids for its first liquefied natural gas import terminal, which will have a capacity of 1.0 million tons a year, and it is also trying to finalize an agreement with Chevron. Corp for a project that will cost more than $4.3 billion--to develop gas fields offshore southern Vietnam.

Petrovietnam and Chevron didn't meet an end-2012 target to agree on gas prices for the offshore Block B project, and talks on this continue, Mr. Hau said. That project involves building offshore pipelines and floating storage facilities, then piping up to 490 million cubic feet of gas daily ashore for use mostly in electricity generation at power stations that are yet to be constructed.

"Chevron continues to work with Petrovietnam to resolve commercial issues to enable a final investment decision," a Chevron spokesman said.

Vietnam's foreign energy investments are focused mostly on Russia, Latin America and Africa. Initial production from a 50-50 joint venture offshore Peru is due to start by the end of the year, with an eventual target of 60,000 barrels a day, Mr. Hau said.

In Cuba, Petrovietnam is assessing results of seismic surveys it has done at an offshore block after having drilled two dry wells at an onshore concession, which it subsequently abandoned, he said.

Progress in developing heavy-oil reserves in Venezuela is proceeding slowly, he said, adding that the project won't meet a target of reaching output of 50,000 barrels a day by next year, although oil has flowed from some of its pilot wells.

Petrovietnam has spent more than $1 billion on overseas investments, "and we will keep on spending," he said.

Combined output from domestic and international fields this year will be around 16 million tons, or 321,000 barrels a day, with most of the expected foreign output--totaling between 25,000 and 28,000 barrels a day--coming from a joint venture in Russia, Mr. Hau said.

Plans to expand Vietnam's still-small refining sector could advance as soon as May, when a final investment decision on the country's second refinery is expected, he said.

Japanese refiner Idemitsu Kosan Co. and Kuwait Petroleum International each hold a 35.1% stake in the planned $9 billion 200,000-barrel-a-day refinery to be built 180 kilometers south of Hanoi. Petrovietnam and Mitsui Chemicals Inc. own 25.1% and 4.7%, respectively. KPI is a unit of state-owned Kuwait Petroleum Corp.

Vietnam has started work to assess shale-gas opportunities in the country after surveys showed that its reserves of coal bed methane aren't commercial, he said. It is too early to provide any forecast on shale gas, he added.

Petrovietnam has an exploration and production contract with Mitra Energy for shale oil and gas in the Red River Delta region and has signed a joint research agreement with ENI SpA to evaluate the overall potential of shale oil and gas onshore Vietnam, Mr. Hau said.

Vu Trong Khanh and Nguyen Anh Thu contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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