Vietnam halts South China Sea oil drilling project under pressure from Beijing

By James Pearson, Henning Gloystei

HANOI/SINGAPORE - Vietnam has halted an oil drilling project in the “Red Emperor” block off its southeastern coast licensed to Spanish energy firm Repsol following pressure from China, three sources with direct knowledge of the situation told Reuters on Friday.
It is the second time in less than a year that Vietnam has had to suspend a major oil development in the busy South China Sea waterway under pressure from China.
A source with direct knowledge of the situation said government ministries in Vietnam had paused the project while the decision-making politburo debates whether to suspend or indefinitely terminate the contract.
The decision, which hangs on whether the fees incurred by contract cancellation will exceed the cost of resisting Chinese pressure, is on hold until the politburo meets, the source said.
That meeting has been delayed by overseas trips by Vietnam’s prime minister Nguyen Xuan Phuc, a series of visits by foreign dignitaries to Hanoi, and the death of former prime minister Phan Van Khai on Saturday.
“The ministries are determined to terminate the contract,” said the source, who asked not to be identified because of the sensitivity of the situation.
A source with direct knowledge of the situation confirmed that the project, which is a joint venture with state oil company PetroVietnam, had been stopped following pressure from China.
A source at Repsol told Reuters high-level executives had been discussing how to respond to the pressure, which had been applied both directly by China, and indirectly via Vietnam.
A spokesman for Repsol in Madrid declined to comment. 

PetroVietnam executives declined to comment. 

The Vietnamese foreign ministry did not immediately respond to an emailed request for comment.
Asked at a regular briefing if China had pressed either Vietnam or Repsol, Chinese foreign ministry spokeswoman Hua Chunying said she did not know where such news had come from, but did not elaborate.
“We hope the relevant sides can work together to maintain the hard-earned positive situation in the South China Sea,” she said.

‘RED EMPEROR’
Red Emperor, known in Vietnamese as the Ca Rong Do field, is part of Block 07/03 in the Nam Con Son basin, 440 km (273 miles) off the coast of Vietnam’s southern city of Vung Tau.
The $1-billion field of moderate size by international standards is seen as a key asset to help slow the decline of Vietnam’s stalling oil and gas production.
But the block lies near the U-shaped “nine-dash line” that marks the vast area that China claims in the sea and overlaps what it says are its own oil concessions.
Located in waters around 350 metres (1,148 ft) deep, it is considered to be profitable from around $60 per barrel. 

Current Brent crude oil prices are almost $70 per barrel.
The field’s estimated potential recovery is around 45 million barrels of crude oil, 172 billion cubic feet of natural gas and 2.3 million barrels of condensate, a super light form of crude oil that is mostly a byproduct of gas production.
Global crude oil, by comparison, is at almost 100 million barrels per day. 

Global gas consumption is around 4 trillion cubic metres per year.
The move came as Repsol was making final preparations for commercial drilling, according to the BBC, which first reported the news on Friday.
A rig, the Ensco 8504, was due to depart from Singapore for the drill site on Thursday, the BBC said, citing an unnamed energy industry source.
Repsol spent around 33 million euros ($41 million) on exploration in Vietnam last year, according to the company’s 2017 profit and loss statement.
Repsol’s top management considers the Red Emperor site one of the company’s future growth projects.
Repsol, which has a 51.75 percent stake in the project, signed a 384-million-euro rental contract for a rig to start work on a Vietnamese site in 2019, according to the statement.
Just under half the company’s 1 billion euro ($1.23 billion) investments for which contracts have been signed for 2018 are in Vietnam.

Chinese Aggressions

Vietnam renews India oil deal in tense South China Sea
By Mai Nguyen, Nidhi Verma and Sanjeev Miglani | HANOI/NEW DELHI

Vietnam has extended an Indian oil concession in the South China Sea and begun drilling in another area it disputes with China in moves that could heighten tensions over who owns what in the vital maritime region.
The moves come at a delicate time in Beijing's relations with Vietnam, which claims parts of the sea, and India, which recently sent warships to monitor the Malacca Straits, through which most of China's energy supplies and trade passes.
Vietnam granted Indian oil firm ONGC Videsh a two-year extension to explore oil block 128 in a letter that arrived earlier this week, the state-run company's managing director Narendra K. Verma told Reuters.
Part of that block is in the U-shaped 'nine-dash line' which marks the vast area that China claims in the sea, a route for more than $5 trillion in trade each year in which the Philippines, Brunei and Malaysia also have claims.
A senior official of ONGC Videsh, who asked not to be named because of the sensitivity of the matter, said interest in the block was strategic rather than commercial, given that oil development there was seen as high-risk with only moderate potential.
"Vietnam also wants us to be there because of China's interventions in the South China Sea," the official said.
Vietnam's state-run PetroVietnam declined to comment on the concession, which was first granted to India in 2006 but had been due to expire in mid-June.
Conflicting territorial claims over the sea stretch back many decades but have intensified in recent years as China and its rivals have reinforced their positions on the rocks and reefs they hold.
Far to the south of block 128, drilling has begun in a block owned jointly by Vietnam's state oil firm, Spain's Repsol and Mubadala Development Co of the United Arab Emirates.
Deepsea Metro I, operated by Odfjell Drilling Ltd., has been drilling in the region since the middle of last month on behalf of Spain's Repsol SA, which also has rights to neighboring block 07/03, Odfjell said.
Odfjell declined to comment on the specific location of its vessel, but shipping data from Thomson Reuters Eikon showed it was in oil block 136/3, which also overlaps China's claims.
Odfjell's Eirik Knudsen, V‎ice President for Corporate Finance and Investor Relations, referred further queries to Repsol, which declined to comment. 

PetroVietnam made no comment.

COMPETING MARITIME CLAIMS
When asked about the activity, Chinese foreign ministry spokesman Geng Shuang said China opposes anyone "carrying out unilateral, illegal oil and gas activities in waters China has jurisdiction over".

Chinese General Fan Changlong cut short a visit to Vietnam and a friendship meeting at the China-Vietnam border was canceled around the time the drilling began.
The centuries-old mistrust between China and Vietnam is nowhere more evident than in their competing maritime claims, despite their shared communist ideology and growing trade.
Asked about the most recent drilling, Vietnamese officials said their Chinese counterparts have started raising concerns about cooperation with both Repsol and ExxonMobil Corp. of the United States, which is developing the $10 billion "Blue Whale" gas concession off central Vietnam.
They said Chinese officials also expressed concern at Vietnam's evolving security relationships with the United States and Japan, both of which have offered moral support for its South China Sea claims and help for Vietnam's coastguard.
Tensions with China were being contained, however, and had not yet reached crisis proportions, they said.
"We know they are unhappy again, but we are resisting the pressure – it is a traditional part of our relations with Beijing," one official said privately. 

"Other parts of the relationship remain strong."
Underlining the relationship between India and Vietnam, Vietnamese deputy prime minister Pham Binh Minh told a forum in New Delhi this week that India was welcome to play a bigger role in Southeast Asia -- and specifically the South China Sea.
Hanoi's growing defense and commercial ties with India are part of its strategy of seeking many partnerships with big powers while avoiding formal military alliances.
The pace has picked up since Indian Prime Minister Narendra Modi's administration took office in 2014 and sought to push back against China's expanding presence in South Asia by raising its diplomatic and military engagement in Southeast Asia.
India is providing naval patrol boats, satellite cover to monitor Vietnam's waters and training for its submarines and fighter pilots -- more military support than it is giving to any other Southeast Asian country.
On the agenda are transfers of naval vessels and missiles under a $500 million defense credit line announced last year.
Next week, the navies of India, the United States and Japan will hold their largest joint exercises in the Bay of Bengal.